Diversification: the key to managing risk
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Diversification: the key to managing risk
Smart investors have found ways to minimise risk and increase their chances for reward.
For example, by diversifying – spreading the money you invest over a variety of different kinds of investments – you can reduce the likelihood of being hurt by a downturn in the market for one investment type. If one investment is performing poorly, another may be performing well, since investments react differently to the same market conditions.
Mutual funds have become a popular choice for retirement plans because they spread risk across a number of investments. They pool money invested by many people, which is then combined and invested in a variety of securities by fund managers. Since your money is pooled with the money of thousands of other investors, the mutual fund is able to buy a much greater quantity of securities than any single investor could purchase on their own.
