In your main post, define diversification and explain how it is used to reduce risk. Additionally, explain how different asset classes and the number of securities can influence risk management.
In your responses to your classmates, define systematic and nonsystematic risk, identify differences when considering risk management, and discuss current news to help demonstrate each type of risk.
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Response to john G
Hello class, Diversification what is it and how to apply it. Diversification is
an investment strategy that aims to reduce risk while maximizing return.
It does this by spreading exposure to several different asset classes and
within each asset class. (Simon,2019) This is done for the reason that
the entire portfolio wouldn’t collapse if one or two markets crash.
Spreading your money around to different classes would help minimize
the exposure to a negative impact. In most cases diversification is done
on long term investments like IRA, 401K’s and such. With multiple asset
classes and securities your position is in a better position, a portfolio
should contain upwards to 20+ different assets, such as commodities,
bonds, currencies, and equites, remember more is better and spread out
over the market, to spread out your risk.
Simon, J., & Simon, J. (2019, May 29). What Is Diversification? – A
Complete Guide. Retrieved from https://smartasset.com/investing/whatis-diversification
Response to steven t
Diversification is a process which reduces risks in which it allocates investments in
various instruments, industries, and other categories. It is a way to maximize a
person’s returns by investing in different instruments that counteract differently to
the market (Investopedia 2020). Basically, it is like a see-saw, when one side rises,
the other side falls and vice versa. You want to be at the pivot point where it
balances out. It is a way of equalizing your investment during different economic
events that effect the market like what we are seeing now with the COVID-19.
You want to be diverse in stocks, bonds, funds, ETF, cash and so on. Each of these
acts differently during different times in the economy. Even with stocks you want
to diverse further into technology, REITS, healthcare and so on. You can pick up
regular stocks or stocks that pay dividends. These that pay dividends can and
usually do pay you per share even in economic times. The key is to find a happy
medium between risk and return. This ensures you can achieve your financial goals
while still getting a good night’s rest (Investopedia 2020).
The number of assets to be diversified is different depending on what you read. I
believe the more you have the better. Some say 5, 12 and 30. Some say even 30
isn’t even enough. I read an article with Jim Cramer, who stated that 30 is better
than the 5, but it isn’t enough (Investopedia 2020). My believe is you do what you
are willing to risk. It is what makes you comfortable or to help the client. I myself
like to have 20 of each if I can afford it and keep piecing it until I achieve my
Investopedia (2020). The Importance of Diversification. Retrieved from:
Investopedia (2020). The Illusion of Diversification: The Myth Of The 30 Stock
Portfolio. Retrieved from:
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