Diversification is an important concept in managing your investments.
Diversification means that you manage the risk in your portfolio by
spreading out your capital over different types of investments with different
levels of risk. Doing this will maintain a smooth level of growth to your
There is a wide variety of different types of investments with different levels
of risk that are available. Many people hold a small amount of their portfolio
in cash, this is easy to get to if needed for emergencies and also holds the
least amount of risk, however it also provides the least amount of return.
Bonds from the government or from corporations provide higher return but
you take on the risk that the issuing institution will not be able to pay back
the bond value. Real estate is also a type of investment. Whether it is in the
form of the house you live in or some other type of investment, real estate
has historically provided relatively safe growth over the long term.
Stocks, ETFs and Mutual Funds can provide the best rates of return but you
are also taking on the most risk. Mutual funds have always been a popular
method of investing in the stock market. Mutual funds consist of a group of
stocks that can change according to the efforts of the mutual fund manager
to hold the stocks most likely to provide a good return. ETFs trade on the
markets like stocks but are actually groups of stocks in a specific index or
industry, such as the ETF with the symbol QQQQ, which is tied to the
NASDAQ100. Investors often hold individual stocks as well. These could be
large-cap, highly recognizable companies or they could be small
speculative investments but these investments should be made on the
basis of sound Fundamental Analysis, which will be explained in another