Diversification in Investment


Do you want to invest? First you must know the type of investment risk and results, Diversification in investment means dividing the risk. It means our funding is allocated to the various types of investment, such as shares, property, bonds and gold.

Purpose is to make the risk faced by smaller if one investment decline. For example, if the investment in the sector A decline or loss, then there is still the sector B who became a backup for you to have the potential of improving your finances. So your funds are not lost.

It benefits, and then are there any disadvantages? Yes, if we do excessive diversification, the term the term over-diversification. If you allocate funds to the 10 to 15 investment instruments, for example, then you would have trouble controlling the development of your investment. Then, you will be faced with the emergence of unexpected costs due to excessive investment diversification manages.

It makes you often vary the allocation of funds and trigger the onset of unexpected costs. Over-diversifying also makes us lose the opportunities to invest in instruments that provide considerable results. For example, if the stock price goes up the Middle, then returns elsewhere is not necessarily giving some back as high as investment shares.

Diversification in Investment

Various investments based on risk and result
Before his diversifying, surely you already know the first investment risks are low, medium, and high. Let's discuss it deeper:

Low: this type of Investment does not yield high investments and the risks are very low, Could be even smaller than the rate of inflation. An example of this type of investment is the savings and deposits.

Medium: Medium Risk with a reasonably good result, at least higher than the inflation rate. An example, Mutual funds (excluding mutual fund shares) are also included in the medium-risk investment.

High: High risk high-yield necessarily the reverse also. Mutual fund shares, stocks are the investment of this type.

How to do a good diversification? More detailed again, actually diversify our funding spread not only to the various instruments. A pioneer in the business world Markowitz concluded that in a diversified, we should be aware of the various characteristics of the investment. Results of diversification would look if we put our funding in the "basket" with different risks (be great opposite).

For example, a stock mutual fund investment (risk and high yield). Stock mutual funds usually will put the portfolio into blue chip stocks (which gives regular dividends) so the results of the investment are not too much different from each other and we can balance with diversified investments in low risk.

To diversify the company by buying shares of coal, thus less effective, than we allocate our funds to stocks of Coal Company and the football club. If the price of coal fell like today, then you will lose money.

Diversification and investment management
Diversification with regard to investment management, i.e. the science of arranging investment appropriately to diverse assets (either paper assets like stocks, debt or assets such as buildings, houses the rill and others). A professional in this field is called an investment manager with a product called portfolio. The basis of this science is asset allocation, long-term investment and diversified and itself.

Things to note that diversification should also look at the needs of each individual. For example, if you select the fit young stock mutual fund, but if you switch to the IOU is also good. The bottom line, seen how the needs of the individual concerned.

Need to diversify or not also depends on how the individual personality to manage its assets. There are some people who disagree with diversification; usually they are the ones who have a mature experience and money. Warren Buffet is an example of people who sometimes focus on one type of investment although he has many types of investments. This simple billionaire shows that stock investments can make us richer. For him, the stock investment is giving hope tomorrow after tomorrow or next week and the stock price will rise is speculation.

Do you want to diversify investments? Before doing that, it's good you increase your knowledge about the various kinds' investment and risks as well as our financial condition. Prepare funds for investment and one Buffet which is mandatory for advice: never owed to investment.

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