Your Portfolio & Stock Diversification
Here at the Income Mentor Box Day Trading Academy, we are all about teaching you how to day trade and invest like a professional. A part of investing and trading is of course in relation to the stock market. Yes, there are tons of stocks out there that you can invest in, but how to invest, how many stocks to invest in, and what kind of stocks to invest in are all things you need to know. If there is one thing that our Income Mentor Box Academy knows all too well, it is that stock diversification is very important.
Now, you have probably heard the term “stock diversification” before, but do you know what it really means? The practice of investing in a diverse array of stocks is an oldie, but it also proven and time tested. This is something that can go a long way in maximizing your stock market profits, and does a great job at mitigating the risk of loss as well. Today we want to teach you all about stock diversification, or having a diverse stock portfolio, so you can get great returns.
What Is Stock Diversification?
Stock diversification is the act of investing in multiple different stocks, stock types, and across different classes. This is a technique that reduces your risk of big time losses in the stock market by allocating your investments across multiple industries, categories, classes, and asset types. It’s all about having a diverse stock portfolio that features investments in a variety of assets and categories.
For example, instead of just investing in 1 or 2 big oil stocks, it means investing in oil, gold, tech companies, various commodities, and everything in between. It’s all about having multiple assets. The aim of stock diversification is also to maximize your returns by investing in various areas that can react differently to the same events. Now, you do need to know that stock diversification does not totally do away with the risk of losing investment capital. However, it can go a long way in mitigating risk, minimizing losses, and maximizing profits.
The Benefits Of Stock Diversification
There are quite a few benefits associated with stock diversification and having a diverse stock portfolio, so let’s go over these right now.
- The biggest benefit of having a diverse stock portfolio is that it helps to mitigate risk. By ensuring that you have multiple asset types in your portfolio, in case one goes down the tubes, you have the others to fall back on.
- Stock diversification is not only about accumulating large returns, but also about preserving capital. In other words, having a diversified portfolio can help preserve your life savings and ensure that you have money to live comfortable well into your old age.
- The bottom line is that with stock diversification, you can rely on multiple revenue streams, you have many revenue streams, all with good potential. ON A SIDE NOTE, AT THIS TIME, CANNABIS STOCKS ARE SOMETHING TO KEEP AN EYE ON. TAKE A LOOK AT OUR ARTICLE ABOUT THE BEST CANNABIS STOCKS FOR BIG TIME GROWTH RIGHT HERE!
The Risks Of Only Having Few or The Same Stock Types
There is one big risk associated with having only a couple of stocks, and all in the same class or field. This is that if one stock plummets, if you only have the same type or stocks, ones that are in the same field, they will all plummet. If you put all of your marbles in the same basket, yes, you might win big, but chances are big that you will lose even worse.
For example, if you have all of your money invested in oil company stocks, if the price of oil takes a hit, all of your stocks are going to plummet in value. However, if you have oil, gold, solar energy, hydro energy, and other types of investments, if oil plummets, at least you have other stocks to fall back on and make up for that difference.
How Many Stocks Should I have For Optimal Stock Diversification?
Now that you know what stock diversification is, and why it is a good thing, you might be wondering what actually qualifies as a diverse stock portfolio. Most professional investors, including us here at the Income Mentor Box, would recommend having between 15 and 20 different stocks in your portfolio. Moreover, you want to ensure that they are not all the same type of class of stock as well. Let’s now talk about how you can create a diverse stock portfolio that will help mitigate risk and maximize your revenue stream.
How To Create A Diversified Stock Portfolio
In order to engage in the best version of stock diversification possible, there are some main points and big tips that you will need to follow, so let’s go over these right now.
- You want to try and split your investments up between growth assets and defensive asset types. In other words, having some high, medium, and low risk investments is what you want to do. So, on one hand, investing in things like popular shares and property tend to provide good long term profits, but can be quite risky. And on the other hand, having defensive assets like cash or fixed interest are much lower risk, but also provide smaller returns. You want to have both.
- Also, remember that you want to invest in different asset classes. Shares, bonds, futures, and more, are all a good way to go. Just be sure that if you are investing in shares, that you spread it out across various market sectors. Moreover, you could invest in natural resources, technology, aviation, and other diverse market sectors. If one takes a hit, chances are that you have the others to fall back on.
Investing In Diverse Stocks – Final Thoughts
The bottom line is that this practice of stock diversification can go a long way in mitigating the risk of lost capital. At the same time, it helps improve your chances of getting big, or at least moderate returns, across a variety of stock classes and types. The fact of the matter is that having a diverse stock portfolio is a big time goal of any and every investor.
It might be an old practice, but it is also time tested and proven. For more information on stock market investments, you might want to consider becoming a member of our Income Mentor Box Day Trading Academy. We provide some awesome stock market investing and trading lessons which will turn you into a professional and profitable investor.