What are the major of advantages and disadvantage of diversification?
The advantage of diversification is that it broadens your exposure to market swings. The principle is that one sector (or stock) may devalue, but not all sectors will devalue. In the long term, most sectors tend to experience growth, so the total portfolio value of a diversified account should gradually grow. The disadvantage of diversification is that a portfolio focused on a single sector or stock can have some super growth, naturally this comes with increased risk. Another disadvantage is that diversification can be difficult for small investors. (It doesn’t need to be, but it can be.) If you’re interested in limiting your risk, you’ll be seeking a diversified portfolio. Diversification also applies to having a good mix of common stock and fixed income securities that are appropriate. Despite the previous answer, diversification doesn’t guarantee that you will always make money, it just reduces the risk of losing money. In a recession, you’ll very likely still lose money.
