The diversification

The diversification in terms of personal finances is an investment strategy that consists of distributing the money in different investments, instead of for concentrating this one in a single investment or a single type of investment.

The diversification is a strategy widely recommended by the specialists, because the form is considered most effective to reduce or to control the risk at the time of investing.

If an investor decides to concentrate all their money in a single investment, runs the risk from which the investment obtains bad results and gets to lose part or the total of its money.

However, if he invests of diversified way he reduces or he diminishes the risk, since to lose their money, several of the acquired investments must have bad results at the same time.

All investment always entails a risk, generally, while more potential of yield offers an investment, major will be the risk that entails and, on the contrary, while less yield offers, minor will be its risk.

Reason why the ideal at the time of diversifying is to create a portfolio or portfolio of investments that combine investments that also offer a high yield although a high risk (for example, businesses or action), and investments that offer a low yield, but a greater security (for example, mutual deposits on credit or bottoms).

The proportion of these two types of investments will be given by our objectives of yield, the risk that we will be arranged to assume, or the profile of investor who we have.

If, for example, we looked for to obtain a greater yield, the majority of the investments that conform our portfolio will have to be investments that offer a high yield, although also greater risk. If we have little tolerance to the risk, the majority of the investments that conform our portfolio will have to be investments that offer little yield, but smaller risk.