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Diversifying a Stock Portfolio
What is meant by diversifying a stock portfolio? Why do it? How does an investor diversify? Diversifying a stock portfolio is an investment strategy where the investor chooses investments that react differently to varying conditions in the stock market and market sectors. Investors diversify their investments to reduce investment risk. A basic method of diversifying a stock portfolio is to choose five stocks in five different market sectors. Ideally the various market sectors and the stocks react differently at the various points in the business cycle.