The road to saving
An ever-increasing number of users are searching the Internet for tips to improve their money management. A common mistake is to believe that it is enough to rely on the advice of some self-styled financial guru to learn how to balance income and expenses.
In reality, to be successful in managing your money you need to become familiar with the basics of financial education.
The saving and investment choices that allow us to achieve our goals must, in fact, be based on concepts such as planning, performance, risk and diversification.
Today we want to delve into one of these aspects: diversification.
What is investment diversification?
In the financial field, diversifying your portfolio – or investments – means investing in a variety of financial assets that have different trends and therefore do not move together, do not increase or decrease in value at the same time.
Why diversify?
The goal of diversification is to mitigate the risks deriving from the investment, while maintaining the same return. When we diversify, in fact, we choose to invest in a set of financial assets that are different from each other, so that they are not all influenced by the same favorable or unfavorable circumstances.
We explain it simply, with an example.
The Art of Diversification
Easter Day has finally arrived. You have purchased eggs of all kinds: dark chocolate, milk chocolate, pistachio, caramel-filled or hazelnut-filled, and you are about to put them in a basket. Imagine that each egg represents a different type of investment: stocks, bonds, real estate, mutual funds and so on. Each egg, and therefore each investment, will involve different risks and returns.
Imagine leaving all your eggs in the same basket. If it were to fall, you would run the risk of breaking them all! The same goes for investments.
Likewise, investing all your money in a single sector is risky for our assets if that sector were to have problems. This is why diversifying your investments helps reduce the overall risk for the same return.
In short, by distributing investments in different sectors and, why not, in different geographical areas, if you drop a basket… you have the other one with the whole eggs available!
Our mascots Mica and For also discussed the topic of diversification in the sixth episode of the podcast “Mica solo parole”.
And don’t forget that the Museum of Saving, through educational activities, events and publications, supports everyone, young and old, in the conscious management of money.
To learn more, visit our website!