Diversifying your portfolio means diversifying across companies, asset classes, etc. When you invest in multiple companies, you spread the risk. For example, if you are invested in two companies, the likelihood of expecting a return on your investment is very unsure. If one of those companies experiences a loss, it will be more difficult to see a gain greater than inflation. If you are invested in 10 companies, you are exposed to less risk. If one or two companies experience a loss, the gains from the remaining eight or nine companies will likely be enough to offset those losses and exceed inflation. If you are invested in 100 companies you are protected even more against risk. You should ensure that each fund in which you are invested is sufficiently diversified in order to eliminate risk as much as possible.
Invest enough for retirement
Investing should be a priority. However, there is a tradeoff involved with investing. The more you spend now, the less you save for retirement. The amount of how much to invest will vary from person to person and will depend on the needs of those individuals. However, a good rule of thumb is to invest between 10 percent to 20 percent of your income. Those amounts include employer contributions. If you decide to invest 15 percent, and your employer contributes 3 percent, you can contribute 12 percent and meet your 15 percent goal.
Start investing early
The earlier you invest the better. By investing early, you give your investments more time to accumulate. The following example demonstrates the importance of investing early. If one person starts investing $5,000 per year when he or she is 20 years old until they retire at age 60, they will have more than $1,400,000 for retirement if their investments grow at 8 percent per year. If another person starts investing the same amount each year starting at age 21 with the same 8 percent return and also retires at age 60, they will have approximately $1,295,000 for retirement. Even though, the first individual only started investing one year earlier, they will end up with more than $100,000 for retirement.
Greg is a student studying accounting, and finishing up a master's degree. He enjoys sports such as soccer, basketball, and football as well as extreme sports like rock climbing, repelling, and snow boarding.