In a perfect world, you wouldn’t need diversification. You would pick one market, invest in it, and 30 years later you’d cash out your MASSIVE trading profits and retire.
We don’t live in a perfect world. That scenario isn’t realistic. And you’re fooling yourself if you think that’s a good trading strategy.
That’s where diversification comes into play.
What is diversification?
According to Investopedia, diversification is a risk management technique that mixes a wide variety of investments within a portfolio. The idea is that a trading portfolio built on a variety of different investments will most likely have higher returns and lower risks than a portfolio that holds a single type of investment.
You’ve heard the phrase, “Don’t put all your eggs in one basket.” That’s diversification.
How to diversify your assets
Most traders base their diversification on how much risk they’re willing (or not willing) to take. The more risk they want to take, the more risky assets they hold. The less risk, the more conservative assets they’ll hold. But regardless of risk aversion, traders must always focus on holding different types assets as a safeguard to one market having a large and unexpected bearish move.
Remember Enron? Traders who held a portfolio comprised completely of Enron stock lost it all when they went bankrupt. Remember, don’t put all your eggs in one basket, or in this case one very bad stock.
The bottom line is that a well-balanced portfolio contains a mix of different assets with a focus on diversification safeguards and growth over the long term. Traders need to think about their wealth in terms of decades, not in days or months.
Using VantagePoint for diversification
VantagePoint forecasts for hundreds of stocks in the US and Canada, over 60 Futures markets, 35 Forex pairs, and over 160 ETFs. Why is this important? Not only does VantagePoint forecast the strength and direction of these markets 1-3 days in advance with up to 86% accuracy, the software also provides the variety needed for a diverse profile.
This means that you’ll have a software that provides remarkably accurate market predictions on a wide range of assets. This makes diversification a breeze!