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THE BASICS

How do I begin investing?

Investing begins with an understanding of asset allocations, or how you divide your investment capital into different categories or classes, such as stocks (and mutual funds, foreign stocks, or global stocks), fixed income securities, real estate, commodities (including gold, silver, petroleum, etc.), and cash. It may also include private equity investments in small companies or businesses and foreign currencies, among many other types of investments.

What is a very important consideration when thinking about investing?

One of the most important concepts in investing is to limit your risk through diversification of your investments. The thinking is, if your portfolio is sufficiently diverse, your exposure to the declines in any class of investments is mitigated, as other classes of investments may increase in value, thus protecting your total portfolio.

Why is diversification necessary?

When you invest, it is generally thought that if you spread your investments in a variety of classes, and their values do not move up or down in the same way, this diverse portfolio will have less risk than if you invest all of your money in just one class or type of investment. A diversified portfolio may also have a weighted average risk less than the average risk of each of the investments in the portfolio. It is also accepted that, over time, a diverse portfo

You should never put all your eggs in one basket, so to speak. Instead, diversify your portfolio with a mix of low- and higher-risk investments to get the best return over time.

You should never put all your eggs in one basket, so to speak. Instead, diversify your portfolio with a mix of low- and higher-risk investments to get the best return over time.

lio will yield higher returns than one that is relatively less diverse and more concentrated, and will yield a higher overall return than any one individual investment in the portfolio. The main thinking is that positive results of these diverse investments should help reduce the effects of other investments that may decline, as long as your investment choices are not correlated or synchronous. If you have investments in U.S. stocks and Brazilian stocks, and a problem arises in the U.S. economy that may not affect the Brazilian markets, perhaps the investments that are exposed to the U.S. economy may decline, while the Brazilian stocks may not decline, or may even increase.

 
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