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Risks & Diversification — The Benefits of Diversification
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The Benefits of Diversification

The Benefits of Diversification

What can diversification bring to the table for an average investor? Let’s take a quick look at the main reasons why it’s so important to have a diverse portfolio.

  • Reduced risk. The most prominent benefit of diversification is that it helps you mitigate risks. By diversifying, you minimize the possibility that one company or one industry experiencing a downturn would bring down your entire portfolio. It’s way more unlikely that 10 companies go down at the same time.
  • The possibility of higher long-term returns. Diversification is an effective method of preserving the capital you already have while benefiting from steady, long-term growth. This is, again, made possible thanks to the low risks associated with a well-diversified portfolio. In addition, diversification lets you remove the risk of missing out on the next hot company or the next hot industry. Having a little bit of money in a wide variety of assets and sectors will help you raise the odds that you’ll hit the jackpot when the next big thing starts taking off and generating high returns. And even if this doesn’t happen, a well-diversified portfolio tracking a specific index market such as the S&P 500 will likely experience a steady growth when the market grows.
  • Access to different assets. Want to dip your toes into the new world of cannabis stocks? Are you passionate about renewable energies? Looking to add some blue-chip stocks? Another great thing about diversification is that it allows you to try many types of investments at the same time without risking too much of your money.