Finance: What is fund diversification, and why is it important?

What is fund diversification and why is it important? Fund diversification means investing in different financial products and sectors. It’s really important because if one sector tanks, an investor doesn’t want to have all of their money tied up in that. It’s a way of ensuring that in poor economic situations, whether across the board or sector specific, investors will minimize their losses.

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Transcript

00:29

shares of the newly IPO to whatever dot-com and it could be a moonshot. [chart on screen]

00:34

SpaceX IPOs at fifty bucks a share and soars to a thousand dollars a share, but

00:40

well then the Martians kill the visitors and eat their brains and the spacecraft.

00:45

oh well you were rich for at least an hour. that's something right most people [alien on flaming planet]

00:50

don't want to live such a volatile life, especially when it comes to thinking

00:54

about long-term investing and maybe even retirement. when your entire investment

00:59

portfolio is in one stock it can be a wild ride and if you're not a

01:04

professional investor it's likely that you'll get weak and sell at just the [woman types at computer]

01:09

wrong time .so instead of having to worry about timing and picking just the right

01:14

stock most investors buy a basket of stocks which are diverse. like two-thirds

01:20

US stocks one-third non-us stocks. maybe twenty percent of your portfolio is

01:25

invested in high-growth technology. ten percent is in transportation with a lot [pie chart shown]

01:30

of dividend yield. and of course there's always the one percent riboflavin. I

01:34

don't forget that. so yeah when you diversify and two or three of your

01:39

stocks take a dive, well then not all of your eggs are ruined. there are just one

01:44

or two rotten ones in the bunch while the rest are going to be used to cook [smiling man eats eggs]

01:47

one heck of an omelette.