What is the importance of diversification in investing?

What is the importance of diversification in investing?

Diversification is crucial as it helps to spread risk across various assets, reducing the impact of a poor-performing investment.

Can you give me an example of how diversification works?

Sure! If you invest in stocks, bonds, and real estate, a downturn in one sector won't drastically affect your overall portfolio.

How can I diversify my investment portfolio?

You can diversify by investing in different asset classes, sectors, and geographical regions. Consider mutual funds or ETFs for broader exposure.

What are the risks of not diversifying?

Not diversifying can lead to higher risk, as your portfolio may be heavily impacted by the poor performance of a single investment.

Is there a rule of thumb for how much to diversify?

A common rule of thumb is to hold at least 10-15 different investments across various asset classes to achieve effective diversification.