Index Equity Funds Investment Information and Traders Guide to Funds
Diversify Your Investment Portfolio To Make You More Likely To Be Successful Trading In The Markets
We are sure you've heard about how important it is to keep a diverse financial portfolio. There are many reasons for this not the least of which is spreading out the risks as well as the rewards so that one bad day on the market doesn't do in your entire financial future.
Many traders and investors have learned along the way the high price to be paid for failing to diversify can be very high indeed. If you aren't prepared to pay that price then the solution is probably much simpler than you may realize.
The first thing you need to realize is that there is no perfect solution that is always guaranteed to be a safe investment (there is no such thing as a risk free investment only those that carry less risk than others). With this in mind you can minimize the risks by spreading them out between several different types of stocks, stock index markets, futures, bonds and funds, including mutual fund diversity.
It is important to seek the services of a personal financial advisor if you can afford to do so, which we recommend. In all honesty you really can't afford to rest your financial future in the hands of an amateur who knows very little if anything about the way the stock market works and how best to structure your portfolio. If for what ever reason you choose to go it alone there are many options available to have a truly diverse portfolio.
For those of you who actively trade (or desire to learn how to trade) the financial and futures markets, there are a lot of other things outside the markets you should be following. But, I guess my bigger message is for those of you that aren’t in the futures markets, whether you trade them or not, the futures markets have a significant impact on what happens in the other financial markets, including forex, currencies, options and stocks.
That’s why you should soak up every piece of good trading knowledge like a sponge in a quest to clearly see the bigger picture.
The first thing you want to do is divide your holdings between several sectors. This means that when one sector performs poorly you still have the hope that the other sectors won't share the same fate. During the dot com bust a few years back and the sub prime real estate bust more recently many people learned the hardships caused by having too much invested in one particular industry. Had they spread their investments around in a more diverse way many people would not have been hit nearly as hard as they were.
Once you've done that you will want to purchase a few stocks, some conservative mutual funds (these are much lower risk mutual funds designed to steadily but slowly build value over time), and also deposit funds on a regular basis into a money market account to balance things out.
There are all kinds of formulas as to how to do this for maximum effect but the truth of the matter is that you can't really determine the best route for you to take without knowing a little more about your current situation and your goals and plans. This is why a financial advisor is so important. Different concentrations of stocks, bonds, and funds are preferable at different stages in your life and according to the amount of money you currently have set aside.
With diversification you can avoid having too great of a concentration in one stock, one sector and one investment type, whenever possible. You never want to rest your entire financial future in one stock, bond, or one fund because that really is an all or nothing risk and rarely turns out good.
If you get nothing else from a financial planner you really should consult with one about how to best diversify your investment portfolio. He or she can help you get started along the path to financially planning a brighter future than you may have ever imagined for your family.
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