Diversification is one of the most important concepts that any one who wants to invest need to learn. It is an excellent way to manage your risk because you are spreading your money on several types of investment. It will allow you to divide your money into low risk, medium risk and also high risk investments depending on your comfort level in investing your money.
As I mentioned on my previous note, putting all or a significant amount of your money in an individual stock is very risky. There’s a way to spread your money across different companies and industries and that is through mutual funds or exchange traded funds (ETF). These are combination of stocks from different companies that you can buy and allow you to have ownership of a fraction of their shares. Since your money is invested in different companies and industries then the chance of losing it all or a large portion of it is not as high as putting it on a single stock.
If you invest your money in the top 500 companies in USA and spread it equally among them, they will all have to go bankrupt in order for you to lose all your money. The chance of that happening is extremely low and if you look at the history of its performance you have a good chance of your money growing if it continues with its historical trend.
Of course, the growth of your money will not be as quick and as high compared to what an individual stock could potentially offer. However, risk is associated to how much you will lose or gain so an investment with a potential to earn quickly also has a potential to lose your money quickly. I will strongly suggest to not take a high risk investment with all or a significant amount of your money and just adopt a long term strategy and patience when it comes to investing.