You may have heard the saying “Don’t put all your eggs in one basket.” Every time I talk about investments, the term “diversify” always comes up. If you only invest in one area, you’re not diversifying and you’re putting all your eggs in one basket. Diversifying your investments means investing your money in various areas. Here’s some reasons why you need to diversify.
The market has taken a dive recently and you may have noticed your financial portfolio go down also. Do you put all your money in the market? Do you invest in other areas? If you have a diverse portfolio, this will help limit the financial impact if one sector goes down. That’s why it’s so important to diversify and spread your investments in various areas.
Tech stocks are getting hit hard but the oil sector isn’t. What if you had investments in both areas instead of just one? You’d be limiting the impact. Another example, if all your investment money is in real estate, what happens if the real estate market crashes? All your investments may fall. But if you diversified and invested in real estate, tech stocks, consumer stocks, small business, various index funds, international market, you have a better chance limiting the overall impact if one or two sectors fall.
You might be thinking that certain sectors have better returns and you want to focus majority of your investments there. That’s ok but keep in mind of the risks that come with that. Certain sectors grow quick and they can also fall fast. You might be thinking that your savings in that low interest account really isn’t making much. That’s ok so as long as you have a good diverse balance.
Having a diverse portfolio creates that financial balance. It helps limit the impacts when things go the wrong way and helps reduce risk. If you are interested in following my journey, email subscribe to get alerts of latest posts or follow me on Facebook.