When it comes to investing, the importance of diversification should not be negated. In fact, diversification of your portfolio is the key to being a successful investor.
When we talk about diversifying, different people do it differently. Some people will opt for purchasing stocks of different industries, while others will invest in bonds, money market and real estate. The main thing is that you should invest your funds in different market as this will help to reduce the risks involved.
Research has shown that investors who have diversified portfolios have more stable returns compared to those investors who tend to invest just in a single thing. Diversifying your investment portfolio means investing in stocks, bonds, real estate and interest bearing savings accounts. Diversification does not happen overnight as it takes time. It all depends on how much money you can invest. You will usually start by investing in one instrument and then moving to others as and when your fund status allows it.
Your financial planner will advise your spread your investment out evenly. You should follow his advice. This means that if you have available funds of $100,000, you can start by investing $25,000 in stocks, $25,000 in bonds, $25,000 in interest bearing savings account and the balance $25,000 can be invested in real estate. This way you will lower the risk of losing your money and over time, the returns will be great. If one investment works out badly, there are others to fall back on.
You will realize the importance of diversification with time and you will be glad that you did not put all your eggs in one basket.