Any for stock 101 guide will tell you that diversifying your stock investing portfolio is a very important step for you to be a successful investor. Everybody knows why they invest in the stock market, to grow money. However, this notion is only 50% of being a good investor. The other part is controlling risks that the stock market brings that can take away your money. And many, whether they are beginner stock investors or not, don?t have the right stock knowledge to properly follow this rule.
If you?re reading this article, you probably have some experience with the stock market. And if you do have any experience what-so-ever, whether you?re a beginner stock investor or not, you know that diversifying your portfolio is a rule that should be followed. Every investing guide teaches us this common stock knowledge and continuously imprints the importance of it in our heads. Its stock 101 because it?s one of the first things you learn to be a good stock market investor. Yet so many investors don?t realize the importance of stock diversification.
Sector risk is the largest and most hazardous risk in the stock market. It?s stock 101 to know that the stock market is always impacted by sector risk. If you?re a beginner stock investor and don?t know what sector risk is, I?ll attempt to explain it here to give you this important stock knowledge. Each sector moves independently from each other. Therefore, when one sector is up, another is down. Therefore, if you?re able to control this risk, you?ve taken a huge step in being a successful beginner stock investor.
With so many different investing strategies out there, diversification is the only real stock 101 idea that works for all investors. It doesn?t matter if you?re a beginner stock investor or an experienced hedge fund investor, diversification is a must. Many investors don?t have the stock knowledge to realize the many different declines we have in the market. Each sector goes through at least one drop per year so if you were to buy two stocks in the same sector, you would get a double hit during the year. Why take this beating? Do what stock 101 guides tell us, diversify your portfolio and you won?t get affected by these big downfalls in the market.
It?s funny. Like I said above, diversification is stock 101. However, I continuously see investors put together portfolios that aren?t close. They think they are but owning two healthcares or two tech stocks in the same portfolio is definitely not being diversified. If you think diversification is an easy stock knowledge concept to understand, you?re wrong. And I know because I keep on seeing improper diversification time and time again.
Usually, the problem is that they don?t have the right stock knowledge to determine what industries fall in what sectors which results in them buying stocks in the same sector. And this mistake just doesn?t happen to beginner stock investors, you wouldn?t believe the amount of times I?ve seen improper diversification from investors that have been investing in the market for decades. Even though diversifying your portfolio seems like stock 101, it can be difficult to fully diversify properly so learn the stock knowledge to proper diversification.
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