Imagine that you do not do it and invest all your savings in a single company, for example, https://br-stone.com/. Perhaps that company is currently going through a golden stage and its profitability is maximum. But what if it suddenly went wrong? The answer is very simple: you will lose money. And if one day that company collapses, your savings will be in danger.
Diversifying investments does not guarantee that you will not lose money. Investing is risky and unpredictable. Nothing and nobody can assure you that a turn in the markets will not negatively affect your profitability. However, with good diversification, the chances of an investment going bad are reduced.
This is how we reduce risks by diversifying
Nothing better than an example to explain it. Imagine that you do not diversify your investment and that you decide to bet everything on a single company, 10,000 euros, for example. If for some reason the shares of this company fall 15% in a single day, you will have lost 1,500 euros.
On the contrary, if you had diversified into only two companies (5,000 euros each), the collapse of the first would have resulted in a loss of “only” 750 euros. But if the other company is positive and rises 5% that day, the loss would remain at "only" 500 euros.
Now imagine that you had divided your investment into ten different companies: for example, 10% of your money in each of them. The 15% drop in the initial company would have meant a loss of only 150 euros for you, which would surely have been offset by the profits of the other nine companies. As a result, you almost certainly would not have lost money that day.
What is the best way to diversify investments?
There is no scientific method that can be applied to everyone to achieve good diversification of a portfolio. The decision to diversify in some companies or in another will depend on the risk you want to assume and the profitability you want to obtain.
The more diversified a portfolio is, the less risky it will be. However, it may happen that at a certain point, more companies in the portfolio do not generate a greater profit. Therefore, the risk/return ratio is the only one that can help us make a decision.
In general, a well-diversified portfolio is one that integrates companies from different sectors and from different countries. If the objective is to reduce risks, we will achieve it by investing, for example, in Spanish, American, and Asian companies. If some are also dedicated to the primary sector, others to the tertiary sector, and others are technological, the less likely things will go wrong for us.
