Posted on 25 July 2012.
You often hear about portfolio diversification when people talk about the recommended stocks to buy. Unfortunately, many investors think that diversity in their portfolios just means buying a lot of different stocks and waiting for profits. Diversifying your investments is a little more complicated than that.
Even if you buy stocks from several different companies, you have not safeguarded yourself from disaster if they are all in the same few sectors of the market. It is diversity of market sectors that is most important when you divide up your investments. This prevents your entire portfolio from losing value when one sector inevitably suffers a reversal.
To protect yourself and give yourself the most opportunity for gains, you should buy stocks from various sectors of the economy. Choose some from the services sector, others from manufacturing, and additional stocks from the energy, technology and precious metals markets. In fact, you should make sure that your portfolio also includes investments that are not stocks, such as commodities or alternative investments. None of these investments should take up a significant portion of your entire portfolio.
Consider this selection of various stocks as an example of the most recommended stocks to buy. Each of them is performing well for this year. Notice that they come from distinct sectors of the market.
• Apple – A famous technology stock. It is very expensive but nearly all investors have tons of confidence in it.
• Abbot Laboratories – A health care stock. Health care is the one area of the economy that is booming and this is reflected in stock values.
• AES – This electric utilities stock is riding the wave of increased usage and interest in energy in general.
• Eli Lilly – Pharmaceutical companies like this one are making a mint and stand among the most recommended stocks to buy in 2012.
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