This strategy has many complex iterations, but at its root is the simple idea of spreading your portfolio across several asset classes. One way to balance risk and reward in your investment portfolio is to diversify your assets. Conversely, if you invest too aggressively when you're older, you could leave your savings exposed to market volatility, which could erode the value of your assets at an age when you have fewer opportunities to recoup your losses. Invest your retirement nest egg too conservatively at a young age, and you run the risk that the growth rate of your investments won't keep pace with inflation. One of the keys to successful investing is learning how to balance your comfort level with risk against your time horizon. This practice is designed to help reduce the volatility of your portfolio over time. Diversification is the practice of spreading your investments around so that your exposure to any one type of asset is limited.
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