Ep 32: Diversification - What Is It, and Why Do You Need It?
InvestingOn This Episode
Today we’re talking about diversification. What is it, and why is it important? Mark will explain.
Takeaways
On today’s Saving With Silverman podcast, Mark Silverman CFP® explains diversification. Most people we talk with in Arizona don’t even understand what it is or why it’s important. Some people think it’s just a mutual fund or a ton of different mutual funds.
So, how much emphasis do people put on diversification? Not much, mostly because they don’t understand what it is. In its simplest terms, diversification is how much you have in stocks, bonds and cash. We could break that down even further. Stocks, for example, we could talk about small, mid and large cap, microcap, international vs. U.S., and value versus growth.
Why do we diversify? It’s because we know that things don’t move always at the same pace. Stocks will sometimes do better than bonds, but not always. It’s understanding how much risk you’re willing to take. You need to have the right combination and adjust that combination as you approach retirement so you’re not taking too much risk.
It is possible to be too diversified. If you own 10 mutual funds and they all own Apple, for example, and Apple loses money, then they’ll all go down. It’s not cost effective to do it that way. We can run reports and show you how much overlap you have.
Another way we could help people diversify, for example, is if you work for a company and have a lot of their stock, we could reduce some of that and diversify away some of that risk.
Listen to the entire episode to hear more. Click on the timestamps below to skip to a particular segment.
Why do we diversify? It’s because we know that things don’t move always at the same pace.
- Mark Silverman, CFP®
The Layout
Let’s get rolling with the first episode and you can use the timestamps below to skip around to specific topics.
0:39 – Defining diversification
1:28 – How much emphasis
3:09 – How Mark defines it
4:18 – Too diversified
5:28 – Making portfolios better
Don't forget to subscribe to the show on your favorite app!