Everyone who makes an investment will want to get large returns with an increasing value of capital whether using long-term investments or short-term investment products.
A proper strategy is still needed to be able to increase the value of the funds invested. One way is diversification, an investment strategy that experts still recommend.
What is Investment Diversification?
Diversification is a term that investors are familiar with, which means diversity of investment.
There is one parable that is often associated with diversification, which is don’t put all your eggs in one basket.
What this means is that if you want to invest, then don’t invest in just one instrument.
Basically, investors create a diverse portfolio in order to avoid losses.
Portfolio Diversification Reduces Investment Risk
An example is the shares issued by a company.
If the value of the company’s shares continues to decline or weaken, your investment will also decline and the investment value will not grow.
If you separate your investment by buying two stocks from different companies, it will reduce the risk of loss of portfolio value or your investment will be safe.
In other words, diversification is a strategy in placing investment funds into different instruments.
What is meant by an instrument here is its liquidity, risk, and potential return. An example is the potential return on investment in stocks will be different from bonds.
Basically, the return value of stocks is greater than bonds.
It’s just that the risk of investing in stocks is also much greater than bonds.
This is because the fluctuation of the stock price is greater so that the risk is greater.
In addition, the liquidity referred to here is the ease of selling and buying an instrument for investment.
The best example here is property. If you make an ad about your property or house, it doesn’t mean that the house will sell right away.
It could be sold tomorrow, week or next month.
Slightly different from stocks that can be traded that day if desired and can get immediate profit that very day.
In accordance with the character of different instruments, an investor needs to carry out a diversification strategy.
