Investors always looking for a way to reduce risk in the stock market. in this article I will discuss diversified investment portfolios and how can I diversify my investment portfolio.
What is a Diversified Investment Portfolio?
Undoubtedly, investing in the stock market is risky. But if you invest only in one sector or one Company then anything that happened with that particular sector or particular company can impact your investment portfolio. It’s may a good impact or a bad impact. We can accept a good impact on our portfolio. But if your investment portfolio impacted badly then you have to worry about it.
So avoiding those impacts on your portfolio you can buy different sector stocks in a percentage of your investment. So if one sector or company get in trouble & share price falling. Then It will not impact badly your investment portfolio. Investor Diversify their investment portfolio to reduce risk.
Why investors diversified their investment portfolio?
One famous quote “don’t put all your eggs in the one basket”. because anything wrong happened to the basket then all the eggs will be damaged. similarly, when you are investing in the share market you should not put you all the money in the one stock. if anything wrong happened to the invested company. you will lose all money.
.that why always portfolio should be diversified. some investors buy the same sectors all the stock to diversify their portfolio, but this is not that good diversifications. if some bad news comes to the sector then the same sectors all the stock will be fall. so it’s better to well diversify your investment portfolio.
How Can I Diversify My portfolio
Some people think a diversified investment portfolio means buying all sectors multiple stocks. Example: investing $100 to 200 companies that are not a well-diversified investment portfolio. buying 200 or more companies share that it is not easy to maintain a portfolio. if you cannot maintain all company’s stock then obviously you can lose your money.
My view of a Diversified investment portfolio means buying well-performing sectors fundamentally strong companies share. Understand? ok, I’m explaining this in detail. Suppose In the current time 5 sectors performing very well. then you can choose 1 or 2 fundamentally strong companies from every sector. So that limited companies share in your portfolio that can easily manageable also will reduce Investment risk.
So having fundamentally Good companies stocks in your portfolio from different well-performing sectors is the possibility to get a good return.
At the same time, not all companies or all sectors can perform well. so if you include not-well-performing sectors or companies to diversify your portfolio that is not a well-diversified portfolio. also, risk will not reduce by this type of portfolio.
At a time not only one sector growing. multiple sectors can grow Because one sector is connected with another sector. If one group of sectors running well then buy those sectors strong companies shares.
Again I’m clarifying that buying not performing stock or sectors for diversifying your investment portfolio. that affect your return and also it can increase the risk of the investment portfolio.
Conclusion
In the share market always taking risks of all saving money but diversification of the portfolio giving you a little relaxation while investing in the share market.
To reduce the risk of losing money diversification of your investment portfolio is the best option. but it should in a good way and well managed.
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