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The Importance of Diversification

The Importance of Diversification

July 13, 2022
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Diversify Your Financial Portfolios

You’ve likely heard the phrase: “Don’t Put All Your Eggs in One Basket.” But what does that phrase mean for your finances? When applying this phrase to your finances, the true meaning is about the need for diversification. So why do your finances need to be diversified?

The simple answer is that you should work to manage the risk you take in your investment portfolio. Of course, diversification can’t completely prevent loss but studies show that diversification can help minimize your risk. 

Avoiding Risk Through Diversification 

A diverse portfolio has a mix of different asset types and investment vehicles to help you avoid exposure to extraneous risk. Diversification helps smooth out the ebbs and flows of investment performances. So, while some investments may not be doing as well, other investments might be performing better. Since the market can be volatile, diversification aims to help even out the volatility that can often come with investing. The type of investments you have will also make an impact on how well your portfolio is diversified. 

Different Ways to Diversify

There are different ways you can apply diversification to your investments. One of the ways you can diversify your investments is by asset class. Classes can include:

  • Stocks
  • Bonds
  • Real estate
  • ETFs
  • Commodities
  • CCEs

Even as you decide to diversify your portfolio and work to mitigate your risk, some market and investment risk is unavoidable.

As you continue investing and looking for ways to build your wealth, contact the office for more ways in which you can diversify your portfolio and investments.

All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.

A diversified portfolio does not assure a profit or protect against loss in a declining market.

This material was developed and prepared by a third party for use by your Registered Representative. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. The content is developed from sources believed to be providing accurate information.