One of the ways to enjoy the benefits of global economic growth and stay in the game in the long term, is to put your eggs in many baskets.
This is what the experts mean by diversification. In other words, do not invest in just one stock or one single market.
Why is this the case?
Individual companies can fail, and they often do in the long term.
Remember Enron? Wirecard? Hyflux?
Even if we were to exclude the bad eggs, companies do become obsolete or less relevant over time.
According to a study by consulting company Innosight, the average time that a company stayed in the S&P 500 index in 1965 was 33 years.
In 1990, it was 20 years. It’s forecast to decline to 14 years by 2026.
This is why I would starting my investment journey with an exchange traded fund (ETF), which provides exposure to many companies rather than having to pick individual ones.
This view is shared by Warren Buffett, whose advice for us is just to “consistently buy an S&P 500 low-cost index fund. I think it’s the thing that makes the most sense practically all of the time.”
Take the next step
Want to stay diversified? Consider investing in Exchange Traded Funds (ETFs)