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Why Do You Need to Diversify Your Investment Portfolio?

Why Do You Need to Diversify Your Investment Portfolio?

A diversified investment portfolio helps in mitigating risk and ensuring a steady revenue stream. If you’re looking to invest a chunk of your wealth, you must have come across this phrase often. All the opinion leaders are telling you to diversify your portfolio, but what does it even mean.

What’s Diversification

Diversification is a key concept in portfolio management. It essentially means that you shouldn’t be putting in all your funding in just one investment opportunity. Rather, you should spread your funds out into smaller pools and invest in multiple products that are different from each other.

The way this works is that when you’ve got a variety of investments in different industries and unrelated products if one of them is doing bad, you don’t lose all your money. You’re able to save these amounts only because you chose to diversify.

Here are the major benefits of diversification:

Minimizing Risk

 When you diversify your investment portfolio, you end up minimizing your risk of losing your money. Some risks remain; you can’t completely eliminate them, but diversification reduces your risk. Let’s take an example to understand this.

Let’s assume that you invested in a few big airline companies thinking that the industry is doing well and will benefit you. But as soon as the COVID-19 hit, all your investments went down the drain.

However, had you also invested in some other industries, such as e-commerce or medicine, you would’ve only lost a fraction of your investment.

Maximizing Revenue

Along with reducing your risk levels, diversification also helps you increase your revenue. Some of your investments may perform well during a specific period, and others may perform well during some other time. If you’ve invested in multiple products or industries, you would have a steady revenue stream at all times.

Let’s take an example for this too. Suppose you invest in two companies. One’s famous for its summer apparel, and the other makes great winter clothes.

Company two would be performing well during the winter season, whereas, during summers, your first company would be profitable. This way, you’ll be comfortably earning all year round.

How Do You Diversify

We now know that it is important to diversify your portfolio, but how does one go about it. There are quite a few ways through which you can diversify.

You could invest in different products such as mutual funds, precious metals, stocks, and bonds. You could also diversify within industries.

If you’re looking to invest in precious metals, we’re the right choice for you! We deal in gold, silver, platinum coins, so that you can buy them from us. You can become an American gold investor by buying our gold coins or bullions. So contact us today to find out more!

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