In these trying financial times, it is more important than ever to keep a diverse financial portfolio to help mitigate potential investment losses.
If your portfolio is diverse, you can effectively spread out associated risks to help preserve your overall investment when the market takes a downturn (which it inevitably will).
No Perfect Solution One of the first things that you need to accept when investing is that there is no single perfect solution to ensure that your investment is safe - all investments carry some degree of risk, the only variation is how large that risk is.
(Even stuffing cash between mattresses - i.
e.
doing nothing - has its own risks.
) Diversification simply helps you spread your investments around to maximize your profit potential in an uncertain world.
Financial Advisor In reality, most investors cannot afford NOT to tap into the services of a trained, professional financial advisor.
Typically, your portfolio is the key to your financial security and is really not something you should want left in the hands of an amateur, even if that amateur is you.
How to Diversify First, consider dividing your investments among several financial sectors.
This means that if one or two sectors go downhill, you will can still (hopefully) count on the others not to share the same fate.
At the onset of our most recent recession, many people who had invested, for example, solely in subprime real estate lost everything - big time! The same was true during the "dot com" bust several years earlier.
If these investors had spread their wealth around, they likely would have retained much of their net worth.
The Next Step Once you have diversified your portfolio among several sectors, diversify yet again by purchasing a combination of stocks, mutual funds, and CD's.
There are numerous formulas available to help you determine which percentage of which types of investments tend to be the most lucrative.
Of course, you can't make proper decisions concerning investments without having a clear understanding of your current financial situation and long term goals.
This is where an experienced financial advisor can be a boon for your financial strategies.
In the end, the whole purpose of diversifying is to avoid having a potentially fatal percentage of your finances concentrated in one stock, sector or investment.
It is rarely a good idea to gamble your entire financial future on a single investment - regardless of how great it may be performing for you today.