PERSONAL FINANCE

Diversification

Objectives

Students will be able to know: The importance of diversification Research investments online and with financial

publications

Do Now

What is diversification? Why is diversification important?

OWNING A COLLECTION OF INVESTMENTS SUCH AS STOCKS FROM DIFFERENT

INDUSTRIES AND SMALL AND LARGE COMPANIES, BONDS, AND MONEY MARKET FUNDS FOR CASH, IN ORDER TO SPREAD

RISK AND HAVE A SAFER INVESTMENT OVERALL.

Diversification

The Magic of Diversification.

By picking the right group of investments, you may be able to limit your losses and reduce the fluctuations of investment returns without sacrificing too much potential gain.

The strategy involves spreading your money among various investments in the hope that if one investment loses money, the other investments will more than make up for those losses.

Carrying Your Eggs in More Than One Basket

Diversification is logical: If you drop the basket, all eggs break

Diversification is mathematically sound Most people are risk averse People take risks only if they believe they

will be rewarded for taking them.

Diversification

Follow Your Own Style: Assess your own risk tolerance and financial awareness

ResearchTime Horizon: before you will need the

moneyPractice: modeling software

Investment Portfolio

When you start saving for retirement, it is a good idea to know how to invest in a diversified portfolio.

When you diversify your portfolio you lessen risk, but do not completely eliminate risk

so that the positive performance of some investments will neutralize the negative performance of others

Bull/Bear markets

Bear markets: stocks seem to stay the sameor lessen in valueBull Market: a time with generally rising stock prices

Bear Markets: Bonds and interest bearing investments are very attractive compared to the stock market

Bull Market: is a time when everyone seems to be snapping up stocks, and stock prices seem to keep roaring upwards

Avenues of Diversification

You can diversify beyond stocks, bonds, money market funds, and savings accounts

You can diversify based on asset classes Large- cap stocks: $100 to $200 billion of outstanding

shares Small-cap stocks: $300 million to $2 billion

Requires a little more research Have a lot of growth potential

Financial Planner

If you have money to invest, it may be worth your while to speak to a financial planner They help define and reach your financial goals. Many times the advisor is working for his or her

employer and may advise a portfolio of mutual funds recommended by the bank or an investor.

Financial planners may charge a percentage or the amount you have to invest or a flat hourly rate.

• THE WALL STREET JOURNAL, INVESTOR’S BUSINESS DAILY, OR OTHER FINANCIAL NEWSPAPERS

• READING REGULARLY IS IMPORTANT TO LEARN AB OUT FINANCIAL PROBLEMS IN AN INDUSTRY OR TO LEARN AB OUT ADVANCEMENTS OR OPPORTUNITIES

Researching Investments with Financial Publications

https://www.youtube.com/watch?v=FrmoXog9zig

https://www.callan.com/research/files/989.pdf