Diversification - Investing

401(K) 2013 / Foter / CC BY-SA

I’ve been writing a lot of dividend stock analyses lately, so today I thought I’d take a break from them and write an article about diversification.

My fiancé and I are in the process of combining our finances, so I thought it would be important to look at my portfolio and re-examine risk. I have a higher risk tolerance than my fiancé so I thought I would start looking at our combined finances and ways to become more diversified.

Diversification is an easy way to help reduce risk. I’ve always known this, but I haven’t been utilizing it that much until more recently. When you are just starting out and don’t have a lot of money it can be harder to diversify when you buy individual stocks. With each new addition your portfolio changes quite drastically. For instance say you own 4 stocks of equal value and purchase a 5th, this is 20% of your portfolio. As time goes on and your portfolio grows you become more diversified naturally. It’s this reason that I wasn’t so worried about diversification in the

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