Learn to invest

Diversification Explained For New Investors

  • October 08, 2020
  • Lauren Weatherall

The best advice a new investor can receive.

Some new investors might make the mistake of investing exclusively in a specific sector or industry. In a booming market economy, it is likely investors will see little downside to this strategy for a short period of time, and the value of shares will likely surpass the price they were initially bought at. But as the old saying goes, never put all of your eggs in one basket.

Why? Because it’s risky.

What is diversification?

Simply put, diversification is an investment strategy that packs a single portfolio with stocks from all different sectors. For example, a diverse portfolio might have some biotech stocks, some tech, energy, pharma, etc. The whole idea behind diversification is to yield higher returns and minimize the amount of risk investors will take on.

The philosophy explained.

Disciplined investing and diversification go hand in hand. The stock market is volatile, which means it has extreme and abrupt ups and downs. When one industry is thriving, another one is declining. This universal uncertainty is the best case for diversification and the reason why a majority of financial experts implore investors to cast a wide net with their portfolios.

When you’re new to investing, it is important to seek the consultation of an expert. Never place a trade without access to the right information and resources that will help you make the best decisions possible with your money.