The Golden Rule

Posted in: Economics, Stock Market, Thought of the Week

Diversification is the “Golden Rule” of investing, and most long term investors will tell you that without diversification, an investor is playing with fire. However, diversification is not as simple as buying high quality assets in a portfolio because many securities react similarly to economic and market factors. The goal of diversification is to avoid gaining too much exposure to one factor. Portfolios should contain securities with a mix of geographic, asset class, sector, and style diversification.  Each security should be fundamentally different from one another to minimize risk.

Another important rule of implementing diversification into your portfolio is constantly monitoring the risk of each security. This is because risk factors change over time and so must your portfolio to stay well diversified. Read this week’s Thought of the Week to get an in-depth plan of how you can further diversify your portfolio.

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As an Investment Advisory Representative working in conjunction with Global Financial Private Capital (GFPC) we are provided weekly thoughts on what is happening in the economy and the market.  Written by our investment committee at GFPC we find these thoughts to be informative and interesting.