What is Diversification? [and Why Buffett is WRONG]

Warren Buffett has said diversification is only needed when you don't know what you're doing but I'm going to show you why portfolio diversification is absolutely critical for 99% of investors.

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Both Buffett and Mark Cuban have come out publicly against diversification in investing but they are looking at it from a billionaire’s perspective. They hire armies of analysts to help them find the best stocks and the have 10-figure bank accounts to get special deals on investments.

For the rest of us, that strategy just isn’t going to work and diversification can be one of your best tools to meet your investing goals.

I’ll start by showing you what is diversification, sharing a couple of diversification examples, then explain why Buffett has never been more wrong. Then I’ll reveal a strategy that makes diversification easy and still lets you pick stocks for market-busting returns.

So diversification just means having a combination of investments so you don’t lose all your money when shares of one stock take a nosedive . It can mean holding different stocks, it can mean different assets like stocks, bonds and real estate, basically just not having all your proverbial investment eggs in the same basket .

By investing in different stocks, bonds and real estate for that diversification, your portfolio doesn’t rise or fall with just one investment. I'll show you the pros and cons of diversification as well as a few examples and diversification strategies.

Not sure where to start to pick stocks and get that diversification you need? Check out this series on the best stocks in each of the 11 stock sectors. [stock sector series]

1:30 What is Diversification?
2:10 Why is Diversification Important?
3:00 Pros and Cons of Diversification
6:00 How to Get Portfolio Diversification
8:25 My Favorite Stock Diversification Strategy

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Joseph Hogue, CFA spent nearly a decade as an investment analyst for institutional firms and banks. He now helps people understand their financial lives through debt payoff strategies, investing and ways to save more money. He has appeared on Bloomberg and on sites like CNBC and Morningstar. He holds the Chartered Financial Analyst (CFA) designation and is a veteran of the Marine Corps.

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