From the course: Managing Your Personal Investments
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Building a balanced portfolio
From the course: Managing Your Personal Investments
Building a balanced portfolio
- Managing risk is one of the most important jobs you have when you're investing. One key way to do this is to spread your risk among different investments. By putting your eggs in different baskets you are balancing your portfolio and lowering your overall risk. Balancing your portfolio is also a way of reflecting your own risk tolerance. As you know, markets go up and down, but these ups and downs are uneven and unpredictable. When one part of the market goes up, others can go down. When stocks go up, bonds can often go down. Even on the same news the impact can be different. And different kinds of investments are just more volatile than others. What you're really diversifying against is nonsystemic risks. These are things like bad management, product recalls, drops in commodity prices, and changes in regulations that hit individual companies, industries, and countries differently. Diversification is the best way…
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