Cresto Narang Wealthfront.pdf
It's also important that you diversify among different asset classes. Different assets - such as
bonds and stocks - will not react in the same way to adverse events. A combination of asset
classes will reduce your portfolio's sensitivity to market swings. Generally, the bond and
equity marketsmove in opposite directions, so, if your portfolio is diversified across both
areas, unpleasant movements in one will be offset by positive results in another.
There are additional types of diversification, and many synthetic investment products have
been created to accommodate investors' risk tolerance levels; however, these products can
be very complicated and are not meant to be created by beginner or small investors. For those
who have less investment experience, and do not have the financial backing to enter into
hedging activities, bonds are the most popular way to diversify against the stock market.
Unfortunately, even the best analysis of a company and its financial statements cannot
guarantee that it won't be a losing investment. Diversification won't prevent a loss, but it can
reduce the impact of fraud and bad information on your portfolio.