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Financial Risk and Capital

On the surface it might seem that there are similarities between stock investing and Las Vegas style gambling. This assumes, however, that the individual can exhibit the same amount of control over both activities. In Las Vegas, the individual has no control over the game. The odds of winning are established and they cannot be altered. This could be equated to dart throwing as an approach to investing. The outcomes are completely based on probabilities. There is little or no skill involved.

Consider another approach to investing - diversification. Risk in investing is made up of two types - systematic


The proper approach to investing involves diversifying, not only across different companies, but also across different sectors of the economy. In a given year, one sector of the economy will be up and another will be down. One year large cap growth stocks will be up and foreign stocks will be down. The next year real estate will be up and large cap growth may be down. If we knew in advance which sectors would be on top, investing would be easy, but we don't. As a result, diversification across different sectors is necessary. Professional investment advisors agree that diversification across 7-10 sectors

Some common words found in the essay are:
Las Vegas, , approach investing, unsystematic risk, systematic risk, las vegas, cap growth, average results, diversification risk,
Approximate Word count = 412
Approximate Pages = 2 (250 words per page double spaced)


  

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