What is Diversification and why is it so important when investing?

• Diversification helps smooth out volatility by ensuring that no single investment can tank your entire portfolio.
• How to Diversify
  • Balance of Stocks & Bonds, Real Estate, Alternative Investments, etc.

1. Stocks = Growth oriented (but volatile)
2. Bonds = Stability (but lower returns). Historically just over 5% but with a standard deviation of about 12.5.
3. Mixing them reduces risk—when stocks go down, bonds often hold steady. Non-correlated assets are very important.

Industry & Sector Diversification

• Don’t just invest in tech or energy—spread across healthcare, finance, and more.

Geographic Diversification

• U.S. markets are strong, but global markets bring different opportunities.
• Example: While the U.S. was struggling in 2000-2010, emerging markets were booming.

Alternative Assets

• Real estate, commodities (gold, oil), private equity or even private credit add an extra layer of diversification.

The Risks of NOT Diversifying

• Even legendary companies can fail—so betting on one horse is risky.
• Stat: The S&P 500 has averaged 10% annual returns over decades, but individual stocks? Some crash completely. However, let me reiterate the S & P has also had some low moments and currently has about 40% of it’s returns driven by 10 companies.

Final Takeaways

• Diversification isn’t flashy, but it’s proven to reduce risk and increase stability. Are you ready to win?!

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