Ancient Chinese merchants were said to have developed a unique way to manage their risk. They would divide their shipments among several different vessels. 这种方式, if one ship were to sink or be attacked by pirates, the rest stood a good chance of getting through. Thus, the majority of the shipment could be saved.
Your investment portfolio may benefit from that same logic.
Diversification is an investment principle designed to manage risk. However, diversification does not guarantee against a loss. The key to diversification is to identify investments that may perform differently under various market conditions.
On one level, a diversified portfolio should be diversified 之间的 asset classes, such as stocks, bonds, and cash alternatives. 在另一个层面上, a diversified portfolio also should be diversified within asset classes, 比如多样化的一篮子股票.
例如, let’s say a stock portfolio included a computer company, 软件开发人员, 还是一家互联网服务提供商. Although the portfolio has spread its risk among three companies, it may not be considered well diversified, as all the firms are connected to the technology industry. A portfolio that includes a computer company, 药品制造商, 还有一家石油服务公司, 然而, 可能会被认为更多样化.
Similarly, a bond portfolio that invests exclusively in long-term U.S. Treasuries may have limited diversification. A bond fund that invests in short-term and long-term U.S. Treasuries, plus a variety of corporate bonds, may offer more diversification.
The concept of diversification is one reason why mutual funds and Exchange Traded Funds (ETFs) are so popular among investors. Mutual funds accumulate a pool of money that is invested to pursue the objectives stated in the fund’s prospectus. The fund may have a narrow objective, 比如汽车行业, 或者它可能有一个更广泛的目标, 如大盘股. ETFs also can have a narrow or broader investment objective. Keep in mind, though, the more narrow an investment objective, the more limited the diversification. 此外, a narrow investment objective may result in more volatility and additional risks associated with a particular industry or sector.
The concept of diversification is critical to understand when you are evaluating a portfolio. If you want more information on diversification or have questions about how your money is invested, please call us to review your situation.
Mutual funds and exchange-traded funds are sold only by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money. 分享s, when redeemed, may be worth more or less than their original cost.
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