Maintaining investment diversification is critical to long-term investing success. Diversification is a word with three “I”s, so it is easy for us here at Patrumin to remember how we look at diversification when we construct portfolios. They are:
- It should have sector diversification–exposure to multiple sectors and industries in the economy
- It should have capital structure diversification–exposure to companies that do and do not utilize long-term debt
- It should have market capitalization diversification–exposure to companies that are smaller and large in capitalization, within the stated investment mandate.
*Diversification does not guarantee a profit or protect against loss in a declining market; it is a method used to help mitigate investment risk.