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 * Vertanika
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 * Reviews




PORTFOLIO DIVERSIFICATION AS A WAY TO PROTECT YOUR INVESTMENTS

One of the surest ways to avoid disaster during an economic downturn is to
diversify your investment portfolio

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Diversification is one of the most important aspects of a successful portfolio,
which is a golden rule for investors. It means accumulating a variety of stocks
from different markets, sectors, and market capitalization sizes. This helps
reduce your investment’s exposure to market volatility.

In the event of a market downturn, it is much safer to invest in several
different companies from different sectors and different sizes than to stick to
just one group of stocks. Many people lost everything during the dot-com crash
of the late nineties. Diversification can help investors avoid a similar fate.



WHY DIVERSIFY?

Since some investments go up in value while others go down, the main reason
diversification is important is that it tends to reduce the overall risk in an
investor’s portfolio. This can help an investor take on risky assets without
risking being wiped out when they go down in value.

Suppose you have two stocks in your portfolio. If they go up, they are highly
correlated. When one goes down, the other will hurt the investor. However, if an
investor picks two stocks that are not correlated, then when one goes up, the
other will go down.

An example of the problems inherent in owning a concentrated portfolio occurred
in the technology sector in the early 2000s. In the late 1990s, investing
exclusively in technology stocks seemed like a smart strategy.

However, when the tech sector eventually crashed in 2000, many investors who
held large amounts of these stocks saw their portfolios plummet by 80% or more.
It took many of these investors years to recover from these horrific losses. By
comparison, most investors who held a diversified basket of stocks (representing
tech and a variety of other sectors) managed to hold up quite well during the
tech downturn.

How Many Stocks Do You Need for a Balanced Portfolio?
Diversification is perhaps one of the oldest and most important concepts in the
entire investing world. The basic idea is to invest in a wide variety of assets
in order to minimize risk.





HOW MANY STOCKS DO YOU NEED TO DIVERSIFY YOUR PORTFOLIO?

There is no single answer. A portfolio consisting of a group of 20 or 30 stocks
spread across different sectors should provide adequate diversification for a
stock portfolio. In comparison, a portfolio of 5-10 stocks is likely to be much
more volatile.

The minimum number of stocks a healthy portfolio should have is 12. It’s
important to understand that this doesn’t mean you should just go out and invest
in the top 12 companies on the list and hope for success. There’s more to it.

You should also spread your portfolio across several different sectors. This
could be anything from technology to restaurants to travel. This is an important
part of diversification because it allows you to spread out and manage risk.

Diversification, while not a guarantee against losses, is the most important
component of achieving long-term financial goals while minimizing risk.

In other words, you will always have stocks in your portfolio that may not do
well, but in the long run, it won’t matter compared to the winners.



COMPANY SIZE MATTERS

Depending on your specific goals for your portfolio, you should invest in a
healthy mix of small, mid, and large-cap stocks. If you’re looking for a less
risky, slow-growth portfolio, large-cap stocks are your best bet.

However, if you’re looking to see potentially explosive growth over a shorter
period of time, then small and mid-cap stocks are a better fit. These stocks are
younger, riskier companies, but they’re growing quickly and capturing market
share.

However, this isn’t a guarantee that small-caps will grow or that large-caps
will always be stable. The trick here is to find a healthy balance for your
holdings.


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HOW DO I DIVERSIFY MY PORTFOLIO?

There are many different ways to diversify a portfolio, but the basic idea is to
invest in a diverse set of asset classes (such as stocks, bonds, cash, and real
estate—even collectibles and precious metals) and then invest in a diverse set
of assets within those classes.

For example, an investor with a long investment horizon might decide to invest
80% of their portfolio assets in stocks, 10% in fixed income, and 10% in cash.
In contrast, an investor with a shorter time horizon might decide to be a little
more cautious. They might allocate 60% to stocks, 30% to bonds, and 10% to cash.

Another method of diversification involves allocating a certain percentage of
your portfolio to different investment categories within each asset class. For
example, an aggressive investor might decide to allocate 80% of their
investments to growth stocks and 20% to high-dividend stocks.

No portfolio is perfectly diversified because different investors need different
types of diversification. For example, younger investors may be better off
investing a larger portion of their portfolio in riskier assets than older
investors. Therefore, their decisions about portfolio diversification will be
different.



PORTFOLIO DIVERSIFICATION IN PRACTICE

The type of company you invest in will depend on what you expect from your
investment. Are you hoping to earn a steady income for retirement, or are you
looking for income right now? Remember that patience is the key to long-term
wealth in investing.

Peter Lynch, one of the greatest investors of our time, classified stocks in 6
ways, depending on what industry they are in and what you as an investor should
expect in terms of returns:
Slow-Growers: Usually large companies, they grow slowly during times of
abundance, but also fall slowly during downturns.
Resilient: Remain stable in the most difficult market conditions because people
always want what they offer.
Fast-Growers: Smaller, younger companies that have a big impact on the market
and are constantly increasing their revenue.
Cyclical: Companies whose profits and sales rise and fall at regular intervals,
such as airline stocks.
Turnaround: Companies that are struggling but could potentially turn things
around with some smart moves.

Asset plays: Companies whose assets may not be reflected in their bottom line.
For beginning investors, it’s always a good idea to stock up on growth,
resilient, and fast-growing companies. It’s always a little safer to invest in
slow-growing, resilient stocks, which tend to be the best representation of the
overall market. And so far, since its inception, the market has averaged 10% per
year over a ten-year period.

However, as you begin to gain more confidence in your investment portfolio, you
may be able to venture into riskier investments.





REVIEWS FROM OUR CLIENTS

We thank the Vertanika's employees for their responsiveness and polite
treatment. They were very attentive to our wishes and gave professional advice
on how to do everything in the best possible way. We are very grateful and happy
that we found such a company for ourselves!


TOMEN

We are very glad that we turned to Vertanika for services. The prices are
attractive, the staff is very polite and careful in their work. Everything is
done with special attention and meticulous attention to detail. Thank you very
much and we wish you good luck.

JOSHUA

On the advice of friends, we contacted you and received pleasant service for
good money. From the first minutes, we felt special attention and participation
from the staff to ensure that our wishes were heard. Thank you for such a good
job.

CAROLINE

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+1 910-631-7045

contact@vertanika.uk


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