Making Money With A Diversified Portfolio
There are some real doom and gloom sentiments in the financial markets right now
. One person just predicted that the Dow Jones will fall to 5,000. I am an optimist and always think that the best time to buy is when everyone else is selling. That is truly a great way to buy low and sell high.
Another way to make money with your investments is to diversify your investment holdings. Spreading your money across multiple asset classes will only serve to minimize your risk. There are multiple risks that can occur with your investing strategy. One type of risk is if the market as a whole tanks. That is what some financial analysts are predicting. Another type of risk is if the particular company you are invested in tanks. The third type of risk is losing the value of your money to inflation.
Creating a diversified attitude about your investments will serve to minimize the second type of risk stated above. You can spread over many different companies, so if one company falls on hard times you still have your money in investments that are doing good. This strategy is known as asset allocation.
There are many different ways to perform asset allocation. You can choose to invest in equities/bonds, real estate/equity/bonds, commodities/bonds or various other combinations. You can also choose between large cap and small cap stocks as a diversification tactic.
In a study completed by Professors Alok Kumar and William Goetzmann during the 1990's, they found that many investors had not created a strong enough diversification tactic. Their study found that about 25% of the portfolios only contained one stock and about half did not have more than two different stocks in their portfolio. The investors who did try and diversify their investments did so in a very haphazard way. There seemed to be no rhyme or reason for their investment strategy. They did not appear to have tried to find those stocks with minimal correlation.
Every stock carries with it an element of risk. This risk is measured statistically by the use of standard deviations. Standard deviations can simply be stated as how far from the mean a stock price can potentially move. Two standard deviations equal a 90 percent chance that an event will occur.
Stocks that are not correlated move opposite of each other. When one goes up, the other one goes down. Stocks with a strong correlation will typically move with each other. If you have your investment in two stocks with strong correlation, then you might as well choose one of the stocks and put all of your money in that stock. You are in essence doing that with that investment strategy. By finding non-correlated stocks, you are creating a truly diversified portfolio. Asset allocation calculators are available to help you to determine which assets you should purchase to diversify your investment strategy.
Good luck with your investment goals. I wish you well with your attempts to beat the inflation monster and to obtain a greater return than you can get with money market investments.
by: Garth Wheeler
Tim Mcgraw Tickets - Raises Plenty Of Benefit Money Easy Money With Carbide Cutting Tools Save Money By Renting Studio Apartments Get The Betfair Review On Lasapuestas Fibonacci Killer Review Comet Vouchers - A Good Way To Save Money Master Your Subconscious Mind To Achieve Financial Freedom Scholarship For Single Mother – Get the Financial Independence You Deserve Thanks to a Scholarship Patric Chan Review - An Honest Review Of Patric Chan Make Money With Gift Card Exchange The Genius Will And Making Money On Line Creative Zen X-Fi2 (8GB) Review Perpetual Traffic Formula | Perpetual Traffic Formula Review & Bonus