Precisely Why Diversification Is So Crucial For Trading
You must never park all your investments in just one stock and no other stock in the market
. An experienced player would always spread out their investments among a mix range of stocks to minimize the risk to their portfolio on a bad day in the stock exchange.
We're talking here not just about investing in the various stocks but also about investing in the different range of the industries. Like say, if commodities are doing well then oil may be on the downslide or vice versa. You must concentrate on investing in the different sectors of industry so that your portfolio remains unaffected due to occasional big hit taken by a specific sector. Usually it has been seen that people with more diversified portfolio see a much balanced and consistent return on the investments they make than the investors who just make investment in one or two stocks. You can diversify even with penny stocks.
You must remember that you don't have to limit your investments in your portfolio to just stocks. You can make investments in property, bank CDs, etc also. The entire idea of diversification is to protect your interests while making profits on the investments.
I will tell you my personal experience, as to how important and beneficial it is to diversify. When I first made investment of about 15K in a very popular and growing stock which was climbing year after year in the value. I was satisfied that my investments were safe and would grow upwards. Wrong!! I lost 9K as I watched sadly the value of my stock plummet to new lows due to a corporate fraud in the company. Learned learned? Diversify!! I learned that lesson of a lifetime with a monetary loss but I believe that you won't have to to diversify your portfolio and minimize risks.