What is Diversification And How It Works

Diversification

What Is Diversification?

In Finance there are two common techniques, used for reducing the risk in Investment, Diversification and Hedging. Diversification is a strategy(an asset allocation plan) to minimize the risk by making a portfolio with various types of investments. A diversified portfolio can be created by allocating the capital in different categories of Investment(variety of companies, asset classes, industries etc.). A diversified portfolio gives higher long term returns by averaging the returns from different types of Investments and reduces the all over risks.
How diversification works
Investing only in one asset class or industry is not a smart Investing. You may earn more returns but at same time your entire portfolio can be affected by a single negative event in that industry or class. You have many investment in your portfolio, each with its own advantages and disadvantages, responding differently to the market fluctuations. If you have a diversified portfolio than some of your Investment may low performer or some may high performer, so the diversification can eliminate the risks from low performing assets and makes a reasonable return.

5 responses to “What is Diversification And How It Works”

  1. […] data-type="post" data-id="544">mutual fund</a>. If a <a href="https://todayfinance.org/2020/12/26/what-is-diversification-and-how-it-works/&quot; data-type="post" data-id="708">diversified</a> fund, XYZ, is […]

    Liked by 1 person

  2. […] at regular intervals at predetermined date. The fixed amount is auto debited from your account.3. Diversification: The beauty of mutual funds is that you can invest a small amount in one fund and be a member of  […]

    Like

  3. […] the money is invested in different types of stocks, securities or bonds to minimize the risk called diversification, you need not worry it is done by fund manager.2. Need not to be expert in Market You need not to […]

    Like

  4. […] investment with moderate risk this type of schemes is suitable for him/her. These schemes provide diversified approach to investing in the equity markets to small investors with good Returns. read about why […]

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: