If you are just starting to save some money for retirement and want to continue saving for the next thirty years, you may want to visit a financial planner for some help. One of the ways the planner will help you is by ensuring that you diversify your investments. If you do not know a lot about investing, here are several things to understand about diversification of investments.
What Does Diversification of Investments Mean?
Diversifying your investments means that you spread them out throughout a variety of different types of investments. In other words, it means that you avoid placing all the money you have in the same exact account or type of investment. Instead, you divide up your money and place percentages of it into different types of accounts and investments.
Why Is This Important?
The main purpose of diversification is to avoid losing all your money if one investment fails. Have you ever been told to never place all your eggs in one basket? This phrase is designed to promote diversification. If you had all the money you own in a technology stock and the company failed, you would lose everything. On the other hand, if you had just part of your money in this stock, you may end up losing that money, but you would not lose your entire investment.
How Can You Do This?
The final thing you will need to understand is how to go about diversifying your investments, and this is one of the reasons you really need help from a financial planner. Your planner will look at the money you currently have and will divide it between multiple accounts. You will have a say in this, and one of the top things the planner will want to know is how much risk you are willing to take. If you want to take a lot of risk, you may make more money; however, you may also have a greater chance of losing your investment. Therefore, the planner might suggest placing some of your money in high-risk investments and other parts in low-risk investments. The planner might also suggest putting some money in bonds, other money in mutual funds, and other money in stocks. This is diversification.
If you would like to learn more about investing your money and diversifying it, you should contact a financial planning firm to set up an appointment with a planner.
