Talk:Diversification (finance)

From Citizendium, the Citizens' Compendium
Jump to: navigation, search
This article is a stub and thus not approved.
Main Article
Talk
Related Articles  [?]
Bibliography  [?]
External Links  [?]
Citable Version  [?]
 
To learn how to fill out this checklist, please see CZ:The Article Checklist. To update this checklist edit the metadata template.
 Definition Finanicial risk management technique, related to hedging, that mixes a wide variety of investments within a portfolio. [d] [e]

Suggestions for minor improvement

Brian: Very nice contribution. I hope we will see others.

I thought the writing a bit colloquial — not to say that's bad, except when it reduces clarity. Let me suggest a re-write for your consideration, keeping to your sequence, which I include here so that you can substitute it if I've got your sense right and you think it reads more clearly. If you choose to make the substitution and have trouble doing so, let me know.

I also included a basic reference source that backs up your assertions and gives the reader additional information. You might know a better reference, equally accessible to the reader.

--Anthony.Sebastian 16:04, 2 April 2008 (CDT)

Re-write:

In the world of finance, diversification is an investment portfolio strategy used when purchasing a selection of investments intended to curtail overall risk. It is used on investments like stocks, bonds, and real estate, each of which can increase or decrease in value.[1] The volatility of such a portfolio strategy is limited because not all the industries or individual companies invested in increase or decrease at the same time or same rate. A diversified portfolio thus increases the investor’s chances of reducing both the ‘upside’ and ‘downside’ potential for risk, and tends to allow for more consistent investment performance under a wide range of economic conditions.

To sum up, diversification reduces risk by spreading investments across the industry. By spreading or diversifying investments it can eliminate the extremes, tending to protect against major investment losses and gains while potentially providing a safe constant gain.

References and notes cited in text

  1. U.S. Securities and Exchange Commission. (2007) Beginners' Guide to Asset Allocation, Diversification, and Rebalancing

Links

There is an article on Financial economics covering this and other topics. The absence of links to it is puzzling. Is there something wrong with it? Nick Gardner 15:56, 1 May 2008 (CDT)