Adapted from:
Knowledge, Ideas & Perspective (KIP)
"A Just Get to the Point Newsletter"
Understanding the Difference Between an Investment and a Portfolio
I hope this email finds you well! Today's newsletter is about the difference between an investment
and a portfolio
. These are two concepts that need to be understood in order to understand proper diversification
and risk
.
What I really want people to understand, though, is that any individual investment should be considered both on its own and as part of an overall portfolio.
How does this work in practice?
Think about it like this:
You've now reduced your risk! You've taken the time to see that both companies are good investments on their own, and now they are working together in your portfolio. One is new, one is old; one does one thing, the other does something completely different. Unless something crazy happens to the economy as a whole, these two companies are likely to rise and fall independently from each other, which means you've begun to diversify intelligently.
