Mar

31

The Key to Determining What Stocks To Buy Is Diversification

Posted In: Investing Tips

Determining what stocks to buy relies solely and completely on what you are trying to achieve with your stock purchase. An example would be if you were looking for a quick bang for your buck, and are willing to take on an extremely high level of risk, the penny stocks may be an option. If you are looking for the most conservative investment and would like to receive some sort of dividend payment, then one of the Dow Jones Thirty may be the answer. There is no simple solution to any investment, but you must learn and understand exactly what it is you are trying to accomplish with your stock portfolio.

Diversification is one of the keys behind understanding what stocks to buy in any market cycle. If you are an ultra conservative investor, keep about sixty percent of your holdings in individual stocks that have a proven track record of paying dividends, twenty percent in various mutual funds, ten percent in cash and ten percent in bonds. That is a truly diversified portfolio for one who is looking for the conservative approach.

The risk taker can expect to put sixty percent in higher risk stocks, which may be about to develop a new trend, thirty percent in cash and ten percent in ultra high risk stocks, like the aforementioned penny stocks. In either scenario, both portfolios meet both investing criteria and they are both diversified. Understand that if you do not know what a diversified portfolio means, you should either spend some time learning it or get out of the game.

If you are completely unclear on what to buy, or what investment approach to take, or even how much risk you are willing to accept, you need to take some time figuring it out. The greatest investment minds in the world were not born with this knowledge, they learned it. They also accepted that their philosophy is who they are and what they are about.

They made a conscious decision that they were either trying to make a few dollars for retirement and would stick with the Dow 30, or they decided they could accept some risk and take chances on companies such as Research in Motion, who ten years ago still traded on the Pink Sheets. Now they are widely known for being the company that makes all Blackberry phones. It is up to you, the individual investor, which approach you want to take.

Remember that you need to keep your emotions in check, and understand that the reality is that this is real money. Any investment, whether conservative or risky, short or long term, costs money. Moreover, it is your hard-earned money that is at stake. Find out what kind of investor you want to be, and how much money you can risk, and that will ultimately decide for you what stocks to buy.

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Article Source: The Key to Determining What Stocks To Buy Is Diversification