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Why it is Important to Diversify Your Investment

“Don’t put all eggs in one basket,” said Warren Buffet, one of the greatest investors the world has ever seen. This is one of the most important lines you will have to consider when it comes to investment.

If you want to succeed as an investor, you will have to diversify your investment. Diversifying investment means not putting your entire money in one project, instead of spreading your money in various projects. If you look at the successful investors, you will find one common thing, they have widely diversified their investment. You should emulate them and diversify your investment.

Diversifying investment means investing in various businesses. If you trade in the stock market, you will purchase shares from various companies instead of focusing on one single company. Apart from trading in the stock market, you will also have to invest in real estate or commodity market. You buy shares from various companies, you invest in different businesses. When you are diversifying investment, you are putting your eggs here, there, everywhere.

Why diversifying your investment is important? Because there is less risk involved. If you have invested only in X Company and it fails, your entire money will be lost. If you have invested in X and Y company, and X fails, there will be Y to recover your investment. If you have invested in X, Y and Z, it is very unlikely that all of these businesses will fail. In fact, at least one of your investments will make profits and it will help you recover your entire investment.

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Imagine this. You bought a large number of shares in one company. Sadly, the share market went downhill and the value of your shares went down. You lost a significant amount of money. Contrarily, you bought shares in two different companies or bought shares in one company and also invested in real estate. Even when share market goes down, real estate will continue to give you profits. It is less likely that share market and real estate market will go downhill at the same time.

If you want to diversify your investment, you will have to buy stocks, bonds, property etc. Diversifying investment takes time and it depends on how much money you can invest. You may even have to start by investing in one company and gradually invest in more businesses as time goes by. When you diversify, you will see better results and lower risk.

When you are diversifying your investment, try to invest equal amount on various projects. If you have $100,000, invest in four different areas equally; possibly, $25,000 in shares, $25,000 in bonds, $25,000 in real estate and $25,000 in gold.

Your investment is secured, when you diversify.  Investors who have diversified their investments get stable returns on their investments compared to those who have invested in just one project.