So, you’ve just got into the big, exciting world of investing and financial management. Hooray! You’ve just taken your first step to true financial independence. In the financial world, you come across a whole lot of different terms. Words such as bonds, valuation, and frequently “Diversification”. The term is simple enough and unlike most terms in the financial world actually makes a lick of sense.
Diversification is to basically buy a variety of different financial assets. The practice of metaphorically “not putting all your eggs in one basket”. By why really? You may look in hindsight at the world of cryptocurrency and think, “If only I had invested all my money in bitcoin, I would have been a billionaire by now”. And while this is absolutely true, we’re here to point out that putting all your savings into one thing that you think for sure is a winner is literally the worst financial mistake that you could ever make. Think blackberry, think Concorde, pretty sure you’re glad that you weren’t a major shareholder in one of those companies huh?
The world of investing is a pretty brilliant one, there’s a lot to learn and the entire process is extremely exciting and will undoubtedly challenge you as a human and demand that you grow. But what if you just don’t have the time? This is a probability in the modern world and honestly, it’s pretty understandable. There are forces pulling at you from all directions, be it kids, family commitments, clubs, healthcare, you name it, they all want a small chunk of your time. Why not leave the investing and money handling to the experts? Visit managed funds to truly understand what being in safe hands feels like.
Diversification is literally one of the cardinal rules of investing. Imagine that you had a portfolio full of three kinds of stock: shares in a restaurant chain, shares in a mask-making company, and shares in Gold. You see where I’m going with this. When covid hit, share prices of restaurant chains completely tanked while shares in mask-making companies went through the roof. If it hadn’t been for this diversification, if you had only had investments in the restaurant chain, your portfolio would have tanked and gone through the floor so fast that it would pop out of the opposite end of the earth in rural China.
So, let’s go over it one more time. The benefits of diversification include minimizing risk during volatile economies. Opening up your portfolio to more opportunities reduces the chance of your portfolio being reduced to ashes during an economic downturn. For all the benefits of diversifying though, sometimes when one of your companies begins to grow like a star it can feel hard to not sell literally everything and go all-in on that one stock. It can feel kind of like punishment even but during that kind of time remember that no company rises in value forever and it may just begin to drop in value the very next day.