ShmoopTube

00:00

finance a la shmoop. what is fund diversification and why is it important?

00:08

well ever hear the phrase don't put all your eggs in one basket ? yeah if you do

00:14

and there's a pothole, well, this can happen. had she put a few eggs here [woman drives car]

00:19

than another few there and then another few there well breakfast might have been

00:24

saved. well the same thing works for stocks. sorta ,put all your eggs and

00:29

shares of the newly IPO to whatever dot-com and it could be a moonshot. [chart on screen]

00:34

SpaceX IPOs at fifty bucks a share and soars to a thousand dollars a share, but

00:40

well then the Martians kill the visitors and eat their brains and the spacecraft.

00:45

oh well you were rich for at least an hour. that's something right most people [alien on flaming planet]

00:50

don't want to live such a volatile life, especially when it comes to thinking

00:54

about long-term investing and maybe even retirement. when your entire investment

00:59

portfolio is in one stock it can be a wild ride and if you're not a

01:04

professional investor it's likely that you'll get weak and sell at just the [woman types at computer]

01:09

wrong time .so instead of having to worry about timing and picking just the right

01:14

stock most investors buy a basket of stocks which are diverse. like two-thirds

01:20

US stocks one-third non-us stocks. maybe twenty percent of your portfolio is

01:25

invested in high-growth technology. ten percent is in transportation with a lot [pie chart shown]

01:30

of dividend yield. and of course there's always the one percent riboflavin. I

01:34

don't forget that. so yeah when you diversify and two or three of your

01:39

stocks take a dive, well then not all of your eggs are ruined. there are just one

01:44

or two rotten ones in the bunch while the rest are going to be used to cook [smiling man eats eggs]

01:47

one heck of an omelette.

Full Transcript