Try to imagine that you’re holding one pencil in your hand. Now, try to snap it. It may take a little effort, but it’s relatively easy to break just one pencil. Now, repeat this exercise with 30 pencils in your hand. The effort required to break this stack of pencils is far higher and likely impossible to do.
Employing diversification in your portfolio is crucial to building a safe, secure, and reliable nest egg for your retirement. Make sure that you don’t have too many “eggs in one basket.” By having your portfolio depend on one company’s stock or one sector of the market, you can seriously inhibit your ability to hedge against risk. The goal of diversification is for the value of the assets in your portfolio not to move in the same direction, all the time. If you don’t know your current risk tolerance level in your portfolio, then it may be time to schedule a meeting with your trusted financial advisor.