The idea is simple. Investing all your money into one single stock also means exposing yourself to maximum risk should things go wrong. Instead, if you split your budget over several different stocks, there is less risk of your whole portfolio being entirely wiped out at once.
Now, this is where investing can get tricky. When faced with price drops, investors may overreact and sell off their holdings to cut the losses, only to miss out when the market inevitably rises again.With variety in your investments, you also stand to benefit from more segments of the market, reducing the temptation to make speculative bets.One of the most direct ways to diversify your portfolio is simply to increase your number of holdings.
In any case, by investing in negatively correlated assets, investors can reduce the negative impact of a downturn in one market, by having the other asset as a counterbalance. Instead, they can simply buy shares of an ETFs that focuses on the asset classes they are interested in. For instance, they can purchase QQQ for high-growth tech stocks, VNQ for