Hola bellas! Why is diversification so important? Well, have you ever put all your eggs in one basket? If so, you’ve probably have found out, through life experience, that this isn’t the smartest thing to do. When you put all your resources in one place (the opposite of diversification), you could lose everything, if an unexpected event happens. This also applies to investments. For example, if you invest all your money in one stock or company, if that company losses value, you would lose a lot of money from that investment. No one wants to lose their hard-earned money on investments! The whole purpose of investing is to make your money grow and not make it disappear!
When it comes to investing, it is advised that you diversify by having a variety of different kinds of assets within your portfolio. For example, some of the different assets that you could include in your portfolio could include stocks, mutual funds, exchange- traded funds (ETFs), certificate of deposit (CD), and bonds. This way, if a stock you own goes down in price, you can have other investments that are doing well, and balance out the loss. Even within investments, it is advised that you diversify further. For instance, by buying stocks from various different sectors.
By diversifying your investments, you can reduce your risk and maximize your return. If you want to diversify your portfolio, but are not sure how to get started, you can buy mutual funds and ETFs. Mutual funds pool money from different investors and invest it across different companies. ETFs are a pool of securities that can be purchased through a brokerage firm. The difference between ETFs and mutual funds is that ETFs can be bought and sold throughout the day, just like stocks. By applying these concepts into your daily life, you can make your money grow, while not risking it all! Who doesn’t want that?