diversification
in this video we're going to learn diversification
sector industry index blue chip stocks small medium and large cap stocks beta and mutual funds
home depot is a hardware store so why do you think they also sell toilet paper
amazon started out as an online bookstore so why does it now sell everything from batteries
to nike sneakers companies diversify their products to meet a variety of customer needs
which increases their profits diversification is a risk management strategy in which you
spread your investment dollars among different securities sectors and industries the goal of
diversification is to protect the value of your overall portfolio in case a single investment
sector or industry takes a downturn and moves against you a sector is a broad group of stocks
often in one industry for example the healthcare technology and retail sectors an industry is a
more specific group of companies producing similar products or services for example in the technology
sector there is the social networking internet software and hardware industries
an index reports changes in a specific sector or in the economy indexes are important to measure
how your company is performing in comparison to other companies in the same sector or the economy
examples of indexes include the s&p 500 which measures the 500 largest companies listed on
the new york stock exchange in the nasdaq and the dow jones industrial average which measures 30 of
the largest companies an example of a diversified portfolio would be one that has equal weights in
different companies sectors and industries beta is a measure of volatility rapid or unexpected change
a stock with a beta of one means that their price correlates with the overall market
stocks with betas less than one are less volatile than the overall market
and those with beta's over one are more volatile than the overall market market capitalization
also known as market cap is the total dollar value of a company's outstanding shares of stock
market cap is calculated by multiplying the total number of a company's outstanding shares
by the current price per share in general large cap or blue chip stocks are considered less risky
investments while small cap stocks tend to carry the most risk investing in companies of different
sizes can also be a successful diversification strategy another way to diversify your portfolio
is to include mutual funds a mutual fund is an investment that pools money from many investors
and invests in a diversified portfolio of stocks bonds or other securities mutual
funds are managed by financial professionals at banks and other financial institutions and
give individual investors access to diversified professionally managed portfolios at a low price
when you purchase shares of a mutual fund you're investing in a whole basket of stocks or bonds
without having to research and select each individual investment yourself
and remember by investing in a variety of stocks you're spreading out your risk in determining what
mutual funds to invest in check out the entering mutual fund trades video morningstar's mutual fund
ratings are the industry standard the morningstar rating is a measure of a fund's risk and return
relative to similar funds funds are rated from 1 to 5 stars with the best performers receiving 5
stars and the worst performers receiving 1 star question to consider what do you think people
mean when they say don't carry all your eggs in one basket and how does it relate to investing
also how can you diversify your smg portfolio
thanks for watching