The importance of portfolio diversification.
To have a diversified portfolio you should follow these rules:
- Spread your risk to increase your portfolio’s success.
- Invest in assets that will react differently to the same market factors.
- For example, do not hold different travel industry related securities, as these assets have a high correlation. You can read about correlation here. This is not diversification. Holding highly correlated assets increases your risk.
- Instead invest in different assets which are not correlated to each other geographically, industry base, type. For example have some tech ( Google, etc), travel (Airlines, Cruise lines, etc), Oil related (petroleum companies), medical (Vaccine, marijuana etc) and many other industries.
- Consider investing in different categories like Cryptocurrencies, Stocks, Indexes, FOREX, EFTs and commodities.
- Money management is an important part of diversification.
- For example, if you have different assets which are not correlated but invested 90% of your portfolio in the Technology industry then your diversification is not perfect.
- Try to introduce a limit for each category in your portfolio.
- Do not put all the eggs in one basket. Diversify your portfolio as much as you can.
No comments:
Post a Comment