ExecMagazine

I had an Econ teacher that would require our class to say the word “Diversify” three times for any one time we wanted to use the word (diversify).  So throughout the school year, it was pretty amusing to talk and use the word three times without thinking about it.  As you would all expect, “Diversify Diversify Diversify”, became something that was permanently embedded in our minds.  Now that I am out of school and have since taken on investing as a hobby, I realize why my teacher had us say that.  When I am tempted to invest money into one area, I am reminded of the word “Diversify”.  Some people don’t understand this concept and they end up finding out the hard way when they take a loss.

One way to diversify is to invest in more than one mutual fund.  Once you have invested in a standard index fund, you can always check out funds that interest you.  If you like computers, then check out some tech stocks.  If you are into cars, then you might be wise to look into an auto related stock.  Knowing something about a particular stock or type of stock can be beneficial.  You are probably going to keep tabs on something that interests you, and this will allow you to make adjustments to your investment more quickly.

Compare mutual funds from different aspects of the market.  The more spread out you make your investment, the more likely you will gain from large trends and not be as concerned with a single fund’s loss.  Just make sure that you don’t diversify in different funds within a single segment, or this whole “diversification” thing goes down the drain.