why diversify your portfolio(NEWBIE)?

[Beetle-[Mania]]

sorry, I am a newbie. In fact I never invested before. I am just keen. So I apologize.

the question is why diversify?

I've read many question here about investing and many high rated answerers answered that diversifying is a good idea.

split your investment between stocks, bonds, mutual fund etc.
also split between industries.


If your investment is diversified between type of instrument and industries then how can you expect high return?

You can expect to make some but you certainly can lose also. How's diversifying be enough to cover losses and even make profit? well how do you increase the chance of it. I know it's bit safe way but I am thinking you must risk high in order to win alot.

 

[BLam]

Look into cost averaging.
i.e. you have 10K, 5 stocks ranging from $9-$60.... don't put 900 into the $9 dollar stock and 3000K into the $60 dollar stock to "get more shares".

You will soon see that the %'s moved/gained perday are what will be the driving forces of your profits or losses. (Obviously $/% are relatively the same indicators) But it is more plausible to track with %.

Look at it this way, you'd be making what you would be making with your money in the bank for a month in a week. Or even just a few days.

Look for 50% stocks, 15% mutual, 10-15% bonds, 5-10% international (I'd go 10%) and with the change throw them in treasury, and always keep some ammo on the side for spur of hte moment news/buying etc...

Best of luck and may the Bulls be at your side.
PS. Over-Diversification can actually hurt you-->possibly bring/give you too much exposure to volatility. Think of a normal bell curve......

 

[Jeff T]

If you knew for certain which stocks would go up, then diversifying would not be a smart plan.

But, if you don't know, then the safer plan would be to pick (say) 10 different stocks in 10 different industries.

If 6 or 7 go up and 3 or 4 go down, then you make money, even if you don't have any talent for picking stocks.