Investing - Diversitfication

The key to protecting your money when you invest is diversification. It means to have a variety of investments. Why should you diversify?

If you have all your money in stocks and the stock market goes down, your collection of investments will most likely decline at a rate that's similar to the market. Your collection of investments is called your portfolio.

But if two thirds of your money is invested in stocks and one third is in bonds, then you profolio will most likely decline less than the stock market. Putting some of your money ni stocks and some in bonds is an example of diversification.

You can diversity even more by putting together a combination of different categories of investments such as stocks, bonds, CDs and cash. You need to select a variety of investments within each category. You'll want to make as much money as possible while protecting the money that you invest.

Investing - Diversification

Investing in many things reduces the amount of risk that you are taking when making investments. You may choose to open a savings accoung, invest some money in the stock market and purchase some government bonds.

By doing so, you spread out your investment risk. By investing in many different investments, rather than one, you are ensuring that even if a one investment goes wrong, leaving you with loss or low returns, you will still make money on your overall investments.

Making several different investments as a way of reducing overall risk is called diversification. Investors diversify their investments so that no single loss can harm their financial situation in a serious way.