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Investment diversification means make various investment rather than depending on 1. it will be very well explained by Mr. Waren Buffett saying "Don't put all eggs in one basket and never keep your money idle". The need of diversification is to minimize your risk, or don't depend on 1 investment or don't keep your all investment in one place, it should be diversify.
Simple Example: you have invested 100,000 dollars in 1 company and unfortunately that goes bankrupts share price came from 100 to 10 dollar, means your 90% investment gone.
You have invested 100,000 dollars in 10 companies 1 of them goes bankrupts share value go from 100 to 10 dollar but another 5 companies are stable 4 goes up from 100 to 140 so your loss on 1 company 9000 dollars other 4 companies gave you 16,000 profit. so net profit will be 7000 dollars. Hope everybody can understand this.
Under normal market conditions, diversification is an effective way to reduce risk. If you hold just 1 investment and it performs badly, you could lose all of your money. If you hold a diversified portfolio with a variety of different investments, it’s much less likely that all of your investments will perform badly at the same time. The profits you earn on the investments that perform well offset the losses on those that perform poorly.
In theory, diversification enables you to reduce the risk of your portfolio without sacrificing potential returns. An efficient portfolio has the least possible risk for a given return. Once your portfolio has been fully diversified, you have to take on additional risk to earn a higher potential return on your portfolio.
"Investment Portfolio" This is the key word for your question . It is the need to get diversification of investments to Scatter the Risk. Reducing the risk in many different projects is very important to let us not to get the same risk every time in each project.
Sometimes, to also get diversification in the investment filed itself, to get OPPOSITE direction of investment filed. For example, To invest your money in Both, Car Manufacturing companies and Car Preparing and maintenance Company . As they are opposite direction project, as the more purchasing new cars, the less Car`s repair demand and revenues.
Diversification is a tool that reduces risk by allocating investments among various financial instruments, industries and other categories. diversification aims to maximize return by investing in different areas that would each react differently to the same event.diversification is the most important component of reaching long range financial goals while minimizing risk.
So investment diversification is a technique that will assist an entity to avoid putting all their eggs in one basket by spreading their investments in different portfolios.Investment diversification can help an investor or entity manage risk and reduce the volatility of an asset's price movements.
Investment diversification is to have investment in various industries so to mitigate the industries risk of downturn in one industry and maintain the reasonable return.
It is old say of not putting all eggs in one basket
Investment Diversification is a basic objective of building a portfolio is to reduce the risk of loss of capital and/or income by investing in various types of securities and over a wide range of industries.
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Investment diversification mean that to invest in many industries, so that if there is recession in one industry it can be offset by boom in the other industry, risk will be minimized by the investor.
wait a new and important knowledge from u sir :)
