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Diversification – Part 1 (Understanding Risk)
By A Young Investor's Diary  •  April 18, 2012
Portfolio management is as important as stock selection in investing and determining your return on investment. In this aspect, the extent of diversification has always been debated with some supporting the idea of concentration while some diversifies up to 20-30+ stocks. Diversification is the act of diversifying where the central idea is the maxim of "Don't put all your eggs in one basket". This is absolutely correct as you will not want to have all your fortunes to be destroyed by a single event. It is also one of the more encouraged methods of reducing investment risk other than hedging in finance. Using Modern Portfolio Theory term, the more independent assets that one has, the lesser the risk will be such that one can drive standard deviation of the portfolio down to nearly zero. The main point that I am trying to drive across is diversification is necessary, though the ......
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By A Young Investor's Diary
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