The Benefits Of Diversified Investment

Answer 1

Using diversified investment strategies basically means that you are spreading your investments out over a number of different areas to be better assured that you will not lose everything. You are investing in ten companies, for example, instead of just one. A lot of times these plans are set up so that you have one general account into which you can put your money. That money is then automatically spread out over these different investment avenues. You can add money to the account in general and know that it too will be spread out. You do not have to try to figure out how much you have, divide it by the different ways that you want it to be used, and invest accordingly. This streamlines the process and makes it much easier and more practical.

The benefit of this, as mentioned, is that you will probably not lose everything. If you have invested in ten companies and three of them do badly, two stay the same, and five do well, you will gain money. You will not gain as much as you would if all of your money was invested in one company that did well, but you will not lose as much as you would have if all of your money was invested in one company that did poorly. It is all about using the balance to reduce the risk of putting your money in the Stock Market to begin with. This is a good way to make a consistent amount of gain that is much higher than the interest that you would earn in the bank; it will not make you rich in one shot, but it will not make you poor either.

The big complaint that people have with this kind of diversified investment is that you stand a small chance of doing incredibly well. The odds that all ten of your companies -- or however many you have -- are going to do well is very slim. Some will go down and some will be stagnant. People who really want to analyze the market will look down on this because they will want to find only the chance for gain and do not like to admit some loss from the start.