The Secret Formula to never Lose Money - DIVERSIFICATION

Yes, there is secret formula by which you can decrease the chances of losing money in your investment.

This Secret Formula is "DIVERSIFICATION."

Diversification is the process of allocating capital in a way that reduces the exposure to any one particular asset or risk. A common path towards diversification is to reduce risk or volatility by investing in a variety of assets.

Simply speaking it is the process in which you divide your capital between assets in a certain ratio. There is a saying that "don't put all your eggs in one basket," it is true for investing also. Don't invest all your money in just one asset, invest small chunks of money in all the assets. 

Don't just diversify among assets, diversify in between the assets as well. For example you can divide the amount invested in shares among different companies.

Diversification decreases risk.

A friend of mine said "Diversification doesn't decreases risk, it just increases work."

Yes, I agree it increases work but I do not agree that it doesn't decreases risk. It is a lot of work to select the assets and the ratios. But it is worth it. Were you expecting not to lose money without putting any effort first? If you were, you are reading the wrong post my friend.

So, how does diversifying your asset decreases risk?

Just imagine that suppose you have just invested in stocks and that also in just one company. Just imagine, one day suddenly the price of the share starts to fall - low price - very low price - and then the company has no money, the company goes bankrupt and what happens, you lose all your money. You have nothing now.

To prevent this fate you must put your money in different assets. So that if a company fails, you do not lose all your money because you have invested in other things as well.

If the company loses money, you lose money, but in the end, the money lost money is compensated by increase in other investment.

So, diversify as much as possible. I'm not saying to put you money in 100 stocks, just put your money in 10 or even 6 stocks and see the magic.

So, Tell me in comments, Are you going to diversify after reading this post?

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