Insider Hints: Diversity is Key

by David Jenyns on July 23, 2008

Choosing a stock that will sell readily means making sure that the stock has a regular market. The New York Times prints prices daily on more than 2,000 stocks, mostly those listed on exchanges. Wall Street periodicals give prices on still more stocks. Having settled that a stock is marketable, an investor must still face the second question: “Will I be willing to sell stock when I need cash?” When the current price of stock is high, the principal objection to selling may be the income tax on the capital gain. So if the share value in a broadly diversified mutual fund is disappointingly low, it is because general stock exchange values at that time are down.

A “balanced” mutual fund has part of its assets invested in bonds or preferred stocks or both, the remainder in common stocks. When general stock exchange values drop, the share value in a balanced fund does not drop as far as in a common-stock fund.

Market forces have as much of an impact on the individual as they do on the market at large. This is why it’s so important to diversify your porfolio. The old saying “Don’t put all your eggs in one basket” certainly holds true here.

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