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Understanding Diversification in Stock Trading to Avoid Losses

It is important to have a diversified portfolio in order to minimize risk.

What is Diversification?

A variety in your pool (a mix of companies, e.g. tech, oil, industrial, pharmaceutical)
You want to have a mix of industries so that if one industry has a bad year, the rest of your investments still have the potential to do very well
If you invest everything in one industry and it does poorly, you’ll lose money in all of your investments
Example: If all of your stock in technology companies (Apple, Google, Microsoft) and technology takes a big hit, all of your stocks go down.
You are taking a larger risk if you confine yourself to one industry.
Keeping your portfolio diversified is especially important if you are new to the stock market.

Posted in: Let's Talk Stocks Wall Street Basics & Terms

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