Stock Market Investments - The art of assets diversification.

When I started my adventure with Stock Market I knew little about professional analysis, assets growth strategies and the diversification. Life taught me that this was a great mistake, especially when it came to diversifying my investments.

Diversification means dividing your investments between various projects, simply to spread the risk. The advantage of diversified assets portfolio is that it does not depend on results of one or two companies, which might have unusually bad financial results. Thanks to smart minimalization of the risk this tool is very useful for professional Investors.

Diversification is the best when done within an asset category (for instance when you buy stocks of 3 companies from IT sector) and simultaneously between an asset categories (for instance when you buy stocks of companies from various sectors). It is also crucial to check if particular assets are not dependent on each other. It is always the best to buy stocks of enterprises with low correlation of financial results, however it is not an easy task.

Wise Investors diversify their portfolio not only in their Stock Market investments, but also within all of their assets, for instance they hold some of their wealth in government bonds, some in properties around the world and some in banks and finally some in stocks. Sometimes diversification can be also done by purchasing stocks on various markets on various continents.

How exactly this mechanism works and what are the tools and strategies allowing to implement it, can be learned only after some studies, as for instance from “Portfolio Selection: Efficient Diversification of Investments” by Harry Markowitz (recipient of the Nobel Prize).

I hope this article sparked some curiosity in those of you who were not familiar with diversification and risk management in regards to Stock Market investments. Good luck in your studying!

Angela K.