Anyone you talk to about investments will probably tell you the same thing: Dont put all your eggs into one basket! This clich simply means that when you are investing, you should not put all of your money into a single company; or a single industry. This technique of investing is called diversification, but there is more to diversification than just following the clich.
Understanding Diversification
Diversification means that you create an investment portfolio that attempts to reduce risk by using multiple types of investments and investing in more than one company, and within more than one industry.
With a diversified portfolio, when one industry or company fails or takes a large hit; the rest of your investments should be strong enough to weather the storm and help minimize the effects of the loss. Diversification reduces your overall risk. On the other hand, if all of your money was invested into the stock of a single company and the company doesnt succeed, your investment portfolio and net worth is going to take a huge hit and decrease alongside the value of the stock. Additionally, if you invest in multiple companies that are all within the same new...
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