This video can help you learn more about diversifying your portfolio to become a smarter investor.

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To learn more about diversification, visit:
https://www.fidelity.com/mymoney/amateurs-guide-diversification

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When you invest in a stock, you are taking a risk that the value may go down rather than up.

OK, we get it. Investing can be risky. One way to manage that risk is to educate yourself on basic concepts, like asset allocation and diversification.

Asset Allocation is simply financial lingo for how you distribute your money across types of investments. It’s like the strategic decision of which baskets to put your eggs in and how many eggs to put into each. The different baskets are called asset classes.

To help you decide where to put your eggs, ask yourself three questions:

1. How much time do you have before you need to use your money?
2. How comfortable are you with risk?
3. How does your current financial situation look?

Diversification is about strategically putting the right mix of different eggs in each of your baskets.

The key is that you shouldn’t invest all your money in one company, one industry, one country, one ANYTHING. Ideally, you want your investments to be negatively correlated, so when one is going down, another is going up.

Here are some typical ways smart investors diversify their portfolio:
• Invest in companies in different countries
• Own stock in small AND large companies
• Invest in companies in a variety of industries

There are some downsides to diversification. If one of your investments does very well, you won’t make as much as if it was your only investment. But consider the inverse: if you owned only one stock, and the company went out of business, you would lose more money than if you had spread your money across different investments.

Diversification won’t eliminate risk. But it's a smart way to manage risk while still giving you a chance to build your portfolio.

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