"diversification is one of the most important concepts in investment portfolio management, but proper diversification is the key" Discuss
Diversification is the exercise of increasing your investment to avoid exposure to only a single type of asset. The practice is developed to diminish the volatility of the portfolio over time. Diversity of assets is the only way to ensure there are risk balance and reward in the investment portfolio. A portfolio is diversified into two levels, between categories of assets and within classes of assets. According to Klauenberg, among types of assets is your mix of commodities, bonds, real estate cash, and stocks; the high yield bond has a greater risk even though it has the highest potential outcome.
Proper diversification is essential in any market situation since the next market direction can’t be estimated. For instance, when a particular product or service is in high demand, it is almost impossible to sell a stock or serve less than the buying price. When designing diversification, the following tips would be helpful if applied, spreading wealth to avoid risks of investing your cash in a single stock, bond funds, and indexing by matching the bond indexes performance instead of investing in a specific sector. It is also essential for the investors to know when to get out by staying updated on the company's current situation.