Stocks And Diversification
For most people the old adage about not putting all one's eggs in one basket makes perfect sense. Most people can see how this applies to their investing decisions. We by our very nature can be very cautious people and dislike the thought of losing money on investments. However does investor diversification really work for the smaller investor?
At any point in our lives our investment decisions will be determined by our current risk profile. For most their risk profile changes as their life circumstances change. When we are starting out and money isn't plentiful, the risk profile may be low. Then as we move into the wealth accumulation years the levels of risk we can tolerate increase as out investment base is larger and we have a long period left to cover any losses. And as we approach the end of our working lives the risk profile may slide again as caution about the future becomes important. Due to our different needs our attitude to diversification will be different.
Diversification, by its very nature, means that while our risks are minimized our exposure to profits can also be minimized. The money we have tied up in fixed interest is not available to take advantage of a red hot stock picks or a booming property market.
For the small investor size also matters. He will not have the bottomless investment pool to be able to buy significant quantities of the prescribed, balances share portfolio, plus the property investments plus the fixed income options. Or if he tries he will end up with uneconomically sized parcels.
There are commentators out there who use the examples "Henry Ford didn't diversify, neither did Bill Gates". But in the end these are two successful examples. For all the successes there are countless failures where investors have been wiped out by over reliance in one area.
Investor diversification is different for every investor - just make sure you know what your options are. - 23159
At any point in our lives our investment decisions will be determined by our current risk profile. For most their risk profile changes as their life circumstances change. When we are starting out and money isn't plentiful, the risk profile may be low. Then as we move into the wealth accumulation years the levels of risk we can tolerate increase as out investment base is larger and we have a long period left to cover any losses. And as we approach the end of our working lives the risk profile may slide again as caution about the future becomes important. Due to our different needs our attitude to diversification will be different.
Diversification, by its very nature, means that while our risks are minimized our exposure to profits can also be minimized. The money we have tied up in fixed interest is not available to take advantage of a red hot stock picks or a booming property market.
For the small investor size also matters. He will not have the bottomless investment pool to be able to buy significant quantities of the prescribed, balances share portfolio, plus the property investments plus the fixed income options. Or if he tries he will end up with uneconomically sized parcels.
There are commentators out there who use the examples "Henry Ford didn't diversify, neither did Bill Gates". But in the end these are two successful examples. For all the successes there are countless failures where investors have been wiped out by over reliance in one area.
Investor diversification is different for every investor - just make sure you know what your options are. - 23159
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posted by X - Men @ 4:16 AM
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