Diversification. It’s really just a big name for the idea that when it comes to investing, all of your eggs should not be in one basket.

You’ve most likely heard of diversification and understand that in investing, it’s an important concept. What you might not know are the hows and whys it’s so critical in the long term.

Don’t put all of your eggs in one basket simply means that should you trip and fall, all won’t be lost. In investing, putting your money to work in different baskets –– diversification –– reduces your risk of being left with nothing if one area of the market trips or stumbles.

The purpose of diversification is to reduce your risk of loss and to increase your total long-term return. This is done by building a portfolio of investments that are allocated among various financial asset classes –– such as stocks, bonds, real estate, commodities and cash. It’s also smart to further diversify by size of company –– small, medium and large, and by geography –– US, Europe, Asia, Emerging Markets.

When you own a diversified portfolio, you not only lower the risk that all positions will experience the market decline at the same time, you benefit when an area prospers at a different time than the others.

At Carlisle Financial Group we highly recommend diversification. If you would like to understand more, please feel free to contact us at info@carlislefinancialgroupllc.com.