Type of Investment Policy Portfolio diversification is a strategy that is used by the investment sector to reduce the risk of loss from the investments. It is fast becoming an important tool for the investors, which can help them in taking investment decisions and remain safe even in the fluctuating market.
In this process, an investor follows a certain type of investment policy where he or she, instead of investing in one medium, tries to invest in various investment options like bonds, stocks, mutual funds and many more. While investing, the investors choose different industries and sectors. The variety in the portfolio helps it to remain steady in the hostile market situations.
For example, if an investor has invested in the technology stocks only and the sector is not doing well, the investor is sure to face huge loss. But, if the investor has invested in various industries and one of those are not performing well, the loss can be managed by other sectors.
The portfolio diversification not only helps the investors to manage the risk factors related to the investment, but at the same time it also helps the investors to take full advantage of the growth of the market. It is true that if an investor is investing in various options, and any one of those is performing exceptionally, the investor cannot take the full advantage of the situation.
On the other hand, portfolio diversification helps the investor to take advantage of the growth of different sectors simultaneously.
The methods of portfolio diversification are very simple. The investor at first needs to know about the investment options, in which he or she would like to invest money. Next, the investor should find out the industries that are offering those options. At the same time, the potentiality of the industry should also be considered properly. For identifying the sectors, one can take help of an financial advisor or can also do the research himself online. The investor can also buy an automatic diversification program. The program, invests the money itself in several industries, stable company stocks, metals and many more.
Last Updated on : 8th July 2013