Bonds Interest Rate

Why is it important to diversify investment among stocks, bonds, and mutual funds?

when looking for investment that will increase steadily over time thank you :] please, this is for a homework assignment and this is the one question i am not sure about. like why in stead of investing in all stocks or all bonda would i choose to diversify it?

Public Comments

1. to mug old smelly lady : ))))) http://ca.answers.yahoo.com/question/index;_ylt=As9p9E9Pq1U2V.hWqCfQk4XAFQx.;_ylv=3?qid=20081105014257AA9ZAYJ
2. It isnt, it's best to invest in LAND -- esp. now that we're going into the worst depression since the 1930s -- thanks to a democratic congress & todays election !!!! Land lasts forever and 85% of those who are wealthy made their money in real estate including myself !!!! Look up "STOCK MARKET CRASH OF 1929 " .
3. coz, if you invest in only one Stock or whatever, it may not perform as u expected, u know Good time/bad times etc... and your wealth growth rate may halt.... so if you need consistent progress in your wealth in terms of investment and want to reduce the risk exposure then its a must to have a diversified Portfolio... so that your over all return on Investment remain steady... smooth n sound..... E.G; if u invested in Oil expecting it to go UP and suddenly it starts falling badly... what will happen to your money??? all your money can be wiped off in a sec....!!! but if you be cautious and Place a HEDGE (diversifying) against the Oil than nothing to be worried.... your money wil be safe.... ********************************************************************** Diversification in finance is a risk management technique, related to hedging, that mixes a wide variety of investments within a portfolio. Because the fluctuations of a single security have less impact on a diverse portfolio, diversification minimizes the risk from any one investment. A simple example of diversification is this one. On a particular island the entire economy consists of two companies: one that sells umbrellas and another that sells sunscreen. If a portfolio is completely invested in the company that sells umbrellas, it will have strong performance during the rainy season, but poor performance when the weather is sunny. The reverse occurs if the portfolio is only invested in the sunscreen company, the alternative investment: the portfolio will be high performance when the sun is out, but will tank when clouds roll in. To minimize the weather-dependent risk in the example portfolio, the investment should be split between the companies. With this diversified portfolio, returns are decent no matter the weather, rather than alternating between excellent and terrible.