Why diversify essay

Share Loading the player Diversification is a technique that reduces risk by allocating investments among various financial instruments, industries, and other categories.

Why diversify essay

Share Loading the player Diversification is a technique that reduces risk by allocating investments among various financial instruments, industries, and other categories.

Myth or fact?

Most investment professionals agree that, although it does not guarantee against loss, diversification is the most important component of reaching long-range financial goals while minimizing risk.

Here, we look at why this is true and how to accomplish diversification in your portfolio.

Why diversify essay

To learn more, see Diversification: Protecting Portfolios From Mass Destruction. Different Types of Risk Investors confront two main types of risk when investing: Undiversifiable - Also known as "systematic" or " market risk ," undiversifiable risk is associated with every company. Common causes are things like inflation rates, exchange ratespolitical instability, war, and interest rates.

This type of risk is not specific to a particular company or industry, and it cannot be eliminated or reduced through diversification; it is just a risk that investors must accept.

Diversifiable - This risk is also known as " unsystematic risk ," and it is specific to a company, industry, market, economy, or country; it can be reduced through diversification. The most common sources of unsystematic risk are business risk and financial risk. Thus, the aim is to invest in various assets so that they will not all be affected the same way by market events.

If it is publicly announced that airline pilots are going on an indefinite strike, and that all flights are canceled, share prices of airline stocks will drop. Your portfolio will experience a noticeable drop in value. If, however, you counterbalanced the airline industry stocks with a couple of railway stocks, only part of your portfolio would be affected.

In fact, there is a good chance that the railway stock prices would climb, as passengers turn to trains as an alternative form of transportation.

Multiculturalism Essay

But, you could diversify even further because there are many risks that affect both rail and air because each is involved in transportation. An event that reduces any form of travel hurts both types of companies. Statisticians, for example, would say that rail and air stocks have a strong correlation.

Therefore, you would want to diversify across the board, not only different types of companies but also different types of industries.

The more uncorrelated your stocks are, the better. Different assets - such as bonds and stocks - will not react in the same way to adverse events. However, these products can be very complicated and are not meant to be created by beginner or small investors.

For those who have less investment experience, and do not have the financial backing to enter into hedging activities, bonds are the most popular way to diversify against the stock market.

How Many Stocks You Should Have Obviously, owning five stocks is better than owning one, but there comes a point when adding more stocks to your portfolio ceases to make a difference. The most conventional view argues that an investor can achieve optimal diversification with only 15 to 20 stocks spread across various industries.

To learn more about what constitutes a properly diversified stock portfolio, see Over-Diversification Yields Diminishing Returns. To learn about how to determine what kind of asset mix is appropriate for your risk tolerance, see Achieving Optimal Asset Allocation.

Remember, however, that no matter how diversified your portfolio is, risk can never be eliminated completely.

Why diversify essay

You can reduce risk associated with individual stocks, but general market risks affect nearly every stock, and so it is also important to diversify among different asset classes. Trading Center Want to learn how to invest?

Diversity: why is it important in the army, Discipline: Other, Type: Essay - Gabrielle, ID -

Get a free 10 week email series that will teach you how to start investing. Delivered twice a week, straight to your inbox.Essay on Unity in Diversity is the most common topic which students may be assigned to debate during discussion and write an essay during exams or essay writing competition in their school.

Variety of Unity in Diversity essay under various words limit are given below especially for the students. Culture is the common denominator that makes the actions of the individuals understandable to a particular group. That is, the system of shared values, beliefs, behaviours, and artefacts making up a society’s way of life.

Why Does Diversity Matter at College Anyway? 8 ways meeting and working with different people in college can help you in the future. Last week, I covered what a diversity statement is and how to decide whether a diversity statement is right for ph-vs.com, for those of you who will be writing one, I will cover how to do it.

Generally speaking, your diversity statement should be written very much like your personal statement.

Jun 30,  · Diversity in the workplace has become a goal of companies across the country, but what are its pros and cons? Introduction In this Coursework of Economics of industry I will be concluding why firms want to diversify as per their economic validity. As in this coursework will talk about importance and drawbacks of diversification, economies of scale and economies of scope as it . Cultural Diversity Essay Examples. 57 total results. A Look at the Cultural Diversity and Its Benefits in Britain. words. 1 page. The Effect of Multiculturalism in the Canadian Society. 1, words. 4 pages. The importance of cultural diversity in a college education. words. 2 pages.

Hence one can say that the main motivators behind why a firm decides to diversify are economies of scale and scope, market power, profit stability, improve financial performance and growth. Diversification is a technique that reduces risk by allocating investments among various financial instruments, industries, and other categories.

It aims to maximize return by investing in.

Why Diversity & Inclusion Matter