Diversifying Your Portfolio
The goal of diversification is to reduce the risk involved in building a portfolio. Volatility is limited by the fact that not all asset classes or industries or individual companies move up and down in value at the same time or at the same rate. While this limits the rate of growth as well, it reduces the likelihood of substantial losses and allows for more consistent performance under a wide range of economic conditions.
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Assessing Risk While Building a Portfolio
When dealing with investments, risk essentially refers to the chance that investments will decline in value. Obviously, this decline would result in a net loss, so risk can be considered the potential for loss. Risk takes many forms in the investing world. Every investment carries with it some degree of risk. To get an accurate picture of the risk associated with a given investment or portfolio of investments, the various forms of risk should be considered collectively. The result can be viewed with potential return in the context of a given investor's goals to determine if the investment is worthwhile. (more)
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