Portfolio diversification basics: Why is it important?
Portfolio diversification is a strategy aimed at allocating assets across different investment vehicles. The primary goal of this strategy is to reduce the risks associated with investing in individual assets. When you invest in a variety of asset classes such as stocks, bonds and property, you protect yourself from potential losses in one of them.
It's important to remember that the market is subject to fluctuations, and different assets may react differently to these changes. For example, in an economic downturn, stocks may drop in value while bonds may remain stable. By diversifying your portfolio, you increase your chances of stable returns.
It should be noted that diversification is not a guarantee against loss. However, it can help smooth out portfolio volatility and create a more sustainable financial strategy. Studying different asset classes and their behaviour in the market can be useful in forming a balanced investment portfolio.