You Will Lose Money if You Don’t Diversify Your Investment Portfolio

investmentNo matter how much money you have, it will never be enough to retire on if you don’t develop an investment portfolio. Have you heard that energy or medical stocks are poised to make a huge profit? Did you draw down all of your other stocks just to put everything you own into one industrial sector?

If so, you may have just made the worst decision of your life. When you do not have a diversified investment portfolio it is truly a recipe for disaster.

What Is the Investment Pie?

To begin with, it is very important to realize that there is no such thing as one exclusive sector that drives the entire economy. It takes many different kinds of businesses to deliver even the most common of daily necessities.

For example, if you decided to invest in soybean farms, it will not make much sense to overlook transport, stores that sell soy products, and just about anything else tied to this industry. A healthy investment portfolio is one that reflects the network structure of the modern business environment, as well as one that ensures you have as many stocks in key networks as possible.

Do All Investments Decline or Advance the Same Time?

If you are familiar with FOREX trading, then you already know that certain signals indicate how pairs of currency are about to change in relation to each other. In a similar way, industries also go through cycles of gain and loss. When you only have one industry represented in your portfolio, it is likely that every stock will go down around the same time.

On the other hand, if you have a diversified portfolio, some stocks will always be going up while others are going down. The key to successful investing is making sure that you make an overall profit at all times. This simply won’t happen when you only invest in one industrial sector or one network of industries.

What Are the Best Industrial Sectors and Ratios?

In the modern economy, there are 6 main industrial sectors that you should consider for investment:

  • Real Estate
  • Medical
  • Computer Technologies
  • Foods
  • Energy

When choosing companies to invest in, you should choose different sized companies. For example, if you are going to invest in 9 companies for each category, select 3 large corporations, 3 mid-sized corporations, and 3 small ones. In addition, you can also buy stock in a few pink sheet companies even though they are extremely high risk and may go out of business at a moment’s notice.

Aside from that, it is also important to diversify your portfolio to include securities, commodities, bonds, and international stocks.

Once you begin studying industrial sectors and see how they fit together, it will be much easier to diversify your portfolio. While you may not like having one stock or another in decline, at least your overall portfolio will still be safe. As an added bonus, diversification also makes it easier to shift investments around to take advantage of new opportunities without losing a stable core of progress.

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