Why Is It Important To Diversify Your Investments?
Were you able to control your finances and even added value to invest? So know that every investor must be aware of the different profiles of each investment, so you can choose your applications better. The real estate market, for example, can be quite secure, but it has lower yield rates. On the other hand, the financial market may have excellent yield rates, but some stocks are extremely volatile. Therefore, by diversifying your investments, you balance your portfolio and minimize any losses.
To help you with this task, we’ve listed some key reasons for you to diversify your investments. Check out!
Reduced risk of loss
A diversified investment portfolio reduces the risk of loss because it balances different types of investments and economic areas. For example, even if a New York stock market crash has direct consequences on its shares in an information technology company, the agricultural commodity market may remain intact.
Conversely, if a strong frost on the São Paulo coffee plantations greatly changes the supply and price of the crop, the real estate market in Rio de Janeiro will not be affected by this event. By putting your investments in different areas, be they geographic, economic, or even referring to the type of application, you reduce the risks of total loss. Even if an app does not deliver the results you expect, other investments will lessen the impact of an unsuccessful investment or adversity in that market.
What are the types of risk?
Some risks do not depend on your investment strategy. For example, rising inflation is a risk that affects, to a greater or lesser extent, all the investments made at the national level. The same is true of exchange rates. This type of risk can not be avoided and should not be fundamental to the formation of its portfolio of investments.
Other risks, however, are predictable or characteristic of each market. These should be highly taken into account. As examples, there are investments in research (which may or may not lead to positive results), which are subject to greater volatility. Some markets have these characteristics, and you should know how to identify them.
Each investment has a maturation time
It is important that you also make investments in the long term because your income will not be directly dependent on occasional swings in the financial market. Over time, the tendency is for the fluctuation of the value of the application to harmonize. In addition, the longer the maturity of each investment, the greater the chances of you actually observing the valuation or devaluation trends of that application.
It should also be noted that some investments are highly dependent on technological leaps, such as the introduction of new technologies in the market (Apple’s case with its touch screen technology and iPhones).
Diversify, but to what extent?
Investors and market analysts are unanimous in advocating diversification of portfolios. But to what extent? How many types of actions would be ideal to make your card more profitable? There is no exact number, but diversifying your applications between 15 to 20 companies from different sectors would be the most appropriate. From this, there is not much difference in terms of risk reduction, since the applications would already be spread in the main economic sectors.
Keep these observations in mind and diversify your portfolio of investments! Already decided on how to invest? Which of these tips caught your eye? Leave a comment and share with us your experience and opinions!