Diversified investments are investments which are spread out across a wide array of securities to minimize risks for the person making those investments. Making sure that investments are diversified is critical to doing well, no matter than condition the market is in, and it's one of the principles that novice investors are constantly lectured about. Put in simple terms, making diversified investments involves not putting all of one's eggs in the same basket.
The idea behind diversified investments is that when a few investments fail to pay out or begin to struggle, they don't drag down the whole investment portfolio, because the loss is negligible when it is averaged across all of the investments held in the portfolio. Furthermore, having diversified investments ensures that people are more likely to be in a position to take advantage of market upticks and emerging trends, because they hold investments in a variety of areas.
Diversification should include a number of different types of securities, such as stocks, bonds, and so forth. It also includes securities in a number of different fields. In other words, rather than just holding investments in the financial sector, someone should also have investments in technology, auto manufacturing, and so forth, spreading the risk out across multiple industries in addition to multiple types of securities. Finally, good diversified investments are also international in scope, so that people are somewhat insulated from the fluctuations of individual markets.
Some investors prefer to leave the actual work of investing to skilled brokers and firms. Seeking out a diversified investment firm is highly advised, as the members of the firm will be prepared to make good investments on behalf of their clients. Mutual funds can also be used as a source of diversified investments, because they involve the pooling of funds from numerous clients to allow for the purchase of a wide range of investments.
For retirement funds, diversification is especially critical. Young investors who get burned by bad investments may have a chance to rebuild, but people near retirement age are very vulnerable to market fluctuations. Poor investment decisions can result in a shrinkage of available retirement funds, which can be a very serious problem. People who are not experienced in dealing with investments should definitely consider using a financial adviser, if not an investment firm, and they should discuss their expectations in regard to retirement with their advisers to ensure that their funds are invested intelligently.
