Diversification

With diversification there are a few basic rules - one being not have all your eggs in one basket.

In other words, don't invest all your funds in one asset. e.g. - if you're putting money into shares, buy a selection of companies so that if one performs badly or goes bust, you won't lose all or nearly all of your money. Spread it around - diversify - it's the best way to spread your risk and reduce the volatility which might come from holding just one or a very small number of shares.

So, if you have just a few hundred or a few thousand pounds, you might feel limited to being only able to realistically buy two or three shares. A good alternative might be to buy a unit trust which tracks the biggest companies on the London stockmarket .

See Also: Online share dealing service Stockmarket Centre

Last Updated: June 2007 © Moneyextra.com

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