What is vertical diversification?

Vertical diversification is a term that comes from the same concept, but is applied differently in investment and business. In investing, it concerns the selection of different types of financial assets, not only different examples of the same type. In business, it concerns one company that takes over a supplier or a customer than a competitor. It summarizes the proverb that all your eggs do not put in one basket. When investing, diversification will avoid the risk that a specific investment will have serious overall consequences. In business it covers the risk of being too dependent on one particular market element. The growth of this variety is called horizontal diversification. Instead, there is a vertical diversification on the types of assets. The idea is that investment in different asset classes will expand the overall risk without limiting potential revenues too much.

There are several different ways of categoryConsideration for diversification purposes. One is in debt products in which the investor effectively lends the money of the company or public authority in return for interest payments, and stock products in which the investor buys ownership in the company and may be entitled to dividend payments in the future. Another way is to measure the comparative levels of risk and return; Some assets, such as unsolicited bonds, offer a great return, but with a high risk of lack of payments. Other assets, such as government bonds, offer low yields, but are likely to get as close to 100% guarantee as an investor.

As part of the business world, vertical diversification concerns the supply chain compared to the horizontal diversification concerning competitors in the same market. This means that vertical diversification usually means buying a supplier or customer. For examplekeeps sales vending machines. In both cases, the idea is to reduce costs, increase revenue or both to capture a larger share in the money paid by the end consumer.