{"id":8872,"date":"2022-12-27T11:22:34","date_gmt":"2022-12-27T09:22:34","guid":{"rendered":"https:\/\/learn.thndr.app\/?p=8872"},"modified":"2024-06-05T22:24:20","modified_gmt":"2024-06-05T20:24:20","slug":"what-is-diversification","status":"publish","type":"post","link":"https:\/\/thndr.horizondm.com\/learn\/what-is-diversification\/","title":{"rendered":"What is diversification?"},"content":{"rendered":"\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t\t
\n\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t\t\t\t\t

<\/p>

\u201cDon\u2019t put all your eggs in one basket\u201d, a phrase we oftentimes hear that tells us not to invest all our resources into a single possibility. For instance, if you\u2019re on the hunt for a job, filling out a single job application only would be putting all your eggs in one basket, instead of seizing the opportunity to fill multiple applications just in case.<\/span><\/p>

Much like the job hunt analogy, when it comes to investing in stocks, putting all your eggs, or your hard-earned money in this case, in a single stock might be risky. While you may hit the jackpot and have the stock soar to record prices, you have just as much of a chance to see your stock plummet to rock bottom.<\/span><\/p>

What is diversification?<\/span><\/h3>

You can think of diversification as an asset allocation strategy of simply splitting your eggs into different baskets. Instead of pooling all your money into a single type of investment, you can opt to diversify your portfolio by investing in different assets, companies, industries, or even countries. That way, even if one of your investments doesn\u2019t do well, eggs in different baskets can hopefully stay intact.\u00a0<\/span><\/p>

Diversification is best utilized when your investments are not affected by the same economic factors. For example, if you decide to invest in a farm land and a fertilizer stock, they may both be negatively affected by a decrease in demand for agricultural products. Accordingly, you will experience losses twice due to the same factor.<\/span><\/p>

How can I diversify my portfolio?<\/span><\/h3>

You can choose to diversify your investment portfolio in different ways to mitigate different risks. Let\u2019s look at some of these ways below:<\/span><\/p>

<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

\n\t\t\t\t\t\t
\n\t\t\t\t\t
\n\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t\t\t\t\t

Diversification through different asset classes\u00a0<\/span><\/h4>

If carrying eggs only in all your baskets is risky, you can choose to put apples, oranges and bananas in some of your baskets to reduce that risk. Think of the different groceries as the asset classes you choose to invest in. Even if the stock market crashes but you have still diversified your portfolio using different asset classes, your investments will be less affected by this drastic shock. Here are some examples of asset classes to consider for investments:<\/span><\/p>