The Importance of Diversification
If you asked a dozen stock experts to pick their favorite publicly traded company, chances are, you might get a dozen different answers. However, if you asked each one if it is important to diversify your stock holdings, most likely you would get unanimous agreement in the affirmative.
For beginning investors, some experts recommend investing in at least ten or more different companies. While others will say the minimum should be no less than five. So, we know diversification is important. It's like the old adage, "don't put all your eggs in one basket"; with the aim of diversifying being to invest in different sectors of the economy, not simply different companies. For example, if you invest only in tech stocks and that sector drops, then your entire portfolio will be of less value, or if we buy all of our stock in pharmaceutical companies and that industry suffers a downturn, our finances go with them.