Harry Markowitz, the father of modern index investing, showed that the best way to reduce risk is to diversify your portfolio across a wide range of assets.
While many investors have adopted this strategy, many others still try to pick individual stocks or time the market. This is a risky proposition, as it is very difficult to consistently beat the market.
The recent market volatility has shown the importance of diversification. While some asset classes have performed poorly, others have held up well. This has helped to protect investors' portfolios from significant losses.
If you're a long-term investor, it is important to remember the lessons of Harry Markowitz. Diversify your portfolio, invest for the long term, and don't try to time the market. Diversification is a fundamental principle of investment strategy designed to manage risk.
For new investors, diversification helps to reduce your risk by minimizing your exposure to any one particular asset or industry. This is because if one asset or industry performs poorly, your overall portfolio will not be as affected.
For newer investors, diversification can also help to improve your risk-adjusted returns. This means that you can earn higher returns for a given level of risk. Diversification is an important part of any investment strategy. By diversifying your portfolio, you can reduce your risk and improve your potential returns.
Don't diversify just for the sake of it. Make each investment for a clear, well-considered reason. (However, while diversification is generally beneficial, over-diversification can lead to diluted returns).
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