What is the diversification of investment?
Investment diversification is a useful strategy to bring profits to multiple assets to reduce risks associated with the location of all profits in one type of assets or assets. For example, if an investor places all his money in shares of one industry and that the industry will experience something negative that depreciates the shares of associated companies, the investor may lose significant part of his investment. However, if only part of the profits inserts into this sector, the rest inserts into other shares or investment vehicles, it will only lose part invested in the above industrial portfolio. The key to working with diversification is to invest in multiple vehicles and categories to help evenly spread risks. This is usually achieved by selecting investment vehicles that will respond differently under the same circumstances.
Nesystematic risks are the only risks that are diversifiable, which means that risks are special to determineThe company, industry, nation and economics or investment vehicles. These risks often include business or financial risk. Therefore, the aim is to mitigate these risks through diversification of investment by investing in a wide range of assets that will respond differently to market changes. One such example is investment in the transport industry, where investors often invest in several forms of transport. In the chance that a large event affects one form of transport, it will help other parts of the portfolio to compensate for losses, because people turn to these forms of transport until the problem in the previous sector is corrected.
objectively, cautious investors will focus specifically on investment in portfolies that do not correlate. The investor in transport is not only looking for companies representing different ways of transport, but also to invest in industries such as financial institutions. In addition, investors often do this one step further and invest in several classes of assets such as stocks, bonds, nEmsoles and pension plans. However, it is important to note that investment diversification does not reduce or exclude losses, but rather helps to reduce their impact on the total base of the investor's assets. It helps to compensate for the consequences associated with companies that show fraudulent data or spread inaccurate information.
According to some experts, it is not a difficult or complicated project to achieve investment diversification. For example, a selection of only a few shares in a number of industries can help achieve a balanced and diversified portfolio. However, more vehicles are often used because diversification helps only reduce the risk of individual investments. Specific investment vehicles are not immune to the overall market risks that could affect the entire portfolio in one investment vehicle, regardless of diversification in this portfolio. Balance is usually the goal to achieve the media between risks and profits.