Secrets About Investment Diversification
Any investor who has done some research is well aware of the advice diversify your investment portfolio to minimize your risk. It makes sense; we as cautious humans quickly understand the old proverb "Don't put all your eggs in one basket". But when it comes down to the dollars and cents, does investor diversification benefit the smaller investor?
At any point in our lives our investment decisions will be determined by our current risk profile. For most their risk profile changes as their life circumstances change. When we are starting out and money isn't plentiful, the risk profile may be low. Then as we move into the wealth accumulation years the levels of risk we can tolerate increase as out investment base is larger and we have a long period left to cover any losses. And as we approach the end of our working lives the risk profile may slide again as caution about the future becomes important. Due to our different needs our attitude to diversification will be different.
Diversification has an inherent flaw. If you are minimizing your risk, you may at the same time be minimizing your gains also. If we only invest in one stock we miss out on the opportunity to invest in three other stock picks which are having stellar returns.
For the small investor size also matters. He will not have the bottomless investment pool to be able to buy significant quantities of the prescribed, balances share portfolio, plus the property investments plus the fixed income options. Or if he tries he will end up with uneconomically sized parcels.
There definitely examples out there of people who have specialized and reaped the benefits of that specialization; Henry ford and Bill Gates are two examples. But such successes there are numerous others who have been burned by one big bad investment wiping their portfolio.
In the end, just as we are individuals, our investment diversification decisions must be tailored to our circumstances.
Article Source: FxTradingStock.com
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by: Michael Swanson
Total views: 106
Word Count: 340
Date: Mon, 31 Aug 2009
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