From the course: Financial Basics Everyone Should Know (2019)

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Diversifying your portfolio

Diversifying your portfolio

From the course: Financial Basics Everyone Should Know (2019)

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Diversifying your portfolio

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- [Instructor] No matter how well stocks do over time, they are a risky investment. And you as an investor need to be sure that you can handle the risk before you ever invest a penny in stocks. In order to mitigate your risk, or at least to help mitigate your risk, you need to diversify. If you're thinking about investing, you might be wondering how often will your stocks lose money? The answer's quite often, but stay with me. The truth is, that in any given year, about half of stocks lose money. So given that, how can the returns on the S&P 500 be almost 11% per year if half of stocks are losing money? The answer is that the performance of the US stock market is powered by a handful of superstar stocks. We don't know which stocks are going to be superstars in any given year, but they will be there. That's where the risk in stock picking comes in. If you miss out on these superstars, your returns are going to be well below average. For that reason, it's often a good idea for beginner…

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