Diversification

Topics: Investment, Risk, Finance Pages: 2 (395 words) Published: August 24, 2013
Diversification
C’Airea McCluron
Entrepreneurial Finance: Capitalization for the Entrepreneur

Diversification

Diversification is the practice of spreading your investments around so that your exposure to any one type of asset is limited. This practice is designed to help reduce the volatility of your portfolio over time. Note: Having a lot of investments does not necessarily make your portfolio diversified. For diversity, you need several different types of investments.

Popular ways

1.Domestic stocks
2.Bonds
3.International stocks
4.Short-term investments
5.Real estate funds
6.Asset allocation funds
7.Diversification strategy

People are always thinking about their savings in terms of goals: retirement, college, a down payment, or a vacation. But as you build your asset, regardless of which goal you’re pursuing. (fielity.com)You have two important things to consider. The first is the number of years until you expect to need the money this is called (time horizon). The second is your attitude toward risk—also known as your (risk tolerance). I have read that risk tolerances should be pushed to a comfortable limit. Don’t use your safety net.

Biggest Risks

There are many risks but market risk is the most common
Market Risk this is the most familiar of all risks. Also referred to as volatility, market risk is the day-to-day fluctuations in a stock's price. Market risk applies mainly to stocks and options. As a whole, stocks tend to perform well during a bull market and poorly during a bear market. Because market movement is the reason why people can make money from stocks, volatility is essential for returns, and the more unstable the investment the more chance there is that it will experience a dramatic change in either direction. (investopedia) We also have credit or default Risk, which is when a company or individual is unable to pay the contractual interest or principal on its debt obligations. (htt4) Interest rate...

References: Works Cited
(n.d.). Retrieved from fielity.com: https://www.fidelity.com/learning-center/mutual-funds/diversification
(n.d.). Retrieved from investopedia: http://www.investopedia.com/university/risk/risk2.asp
(n.d.). Retrieved from http://www.stansberryresearch.com/dailywealth/1900/biggest-risk-gold-silver-investors
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