What is Diversification and Why it's Important?
Hello Dears Hivers,
It is amazing to have an opportunity to interact with all of you with the help of this blog. I always try to bring quality content to this platform. Today I decided to write something about Diversification in the journey of Investing. Although Investing is a broad term and covers so many aspects today we are going to talk about diversification.
As you are reading this blog on Hive Blockchain so I can make sure that you are aware of investing that is why I chose to talk about Diversification which can help you to take a good decision. So let's start without wasting any time.
What is Diversification?
The word diversification means dividing your principal amount into different parts to manage the risk. In investing an investor use his money to generate a good return, as the market is unpredictable so it can move either side to hedge the bets an investor uses his principal amount to buy different types of stocks, shares, bonds, and many other securities available in the market. Investing money in different types of assets, bonds, and securities is called diversification.
Why Diversification is important?
Diversification is important because the market is not predictable and no one can predict the market move. By diversifying your portfolio, you "reduce the consequences of a wrong forecast".
For example, if you are holding only an aviation company's stocks and there is suddenly something wrong and a major drop hit the share price. in this case, you are losing a sizable percentage of your portfolio. On the other hand, if you are holding three different types of company's shares, if one company gets in trouble and loses its share price you have two more companies share which can perform well and set off the losses.
Benefits of Diversification
Here I'm stating some benefits of diversification which can help you to think about it.
- Hedge against volatilities.
- help you not to lose all your portfolio in a single crash.
- Manage your portfolio profit /loss percentage.
- Protect you against the market cycle.
Diversification may help you to reduce the risk but you can not wipe the risk to get lost. You have to make good decisions to protect your investment.No matter how diversified your portfolio is, risk can never be eliminated. So keep all the risks in mind while investing.
Thanks for reading this
Posted Using LeoFinance Beta
