By Chethan Reddy
You only get one shot, do not miss your chance to blow. This opportunity comes once in a lifetime
This lyric is from the global smash-hit Lose Yourself sung by the rapper, Eminem in the movie 8-mile, which is supposed to be based on Eminems own life. The song is about Eminems transition from living in a trailer park, surrounded by gangs, drugs and suicides into a successful rap career. He only has limited opportunities to rap his way out of the slums and live a better life. The song actually starts out with one of the most famous lines in music history (His palms are sweaty, knees weak, arms are heavy ) which introduces the listener to the tremendous feeling of anxiety and worry that Eminems character in the movie (Rabbit) feels as he is about to perform, realizing how much he has riding on these underground rap battles event and what it could mean for his future. Its do or die. All or nothing.
Diversification is a strategy for life
Common sense says, never put all your eggs in one basket. The same feeling that Rabbit had when his whole career and life seemed to be hanging in the balance is what a lot of people feel like when they lose their jobs and they have no other skills to offer. In todays fast-paced, competitive job market it is absolutely essential that employees keep up with skills and abilities that might not seem relevant to their current position or career track. It is impossible to tell when a company will need to make layoffs, or when automation will replace workers in a particular field. Its necessary to keep yourself as employable and versatile as possible.
Diversification is necessary in investmentDiversification applies to investing, too
Momma always said, life is like a box of chocolates. You never know what youre gonna get.
Among his many other professional endeavors, Forrest Gump was secretly a world-leading financial advisor (just trust me on this one!), and he was definitely onto something when he said this. Financial markets are inherently unstable. From moment to moment, any of a basically infinite number of factors could affect the valuation of a particular stock of a company. Factors like the changing political climate, natural disasters, terrorist attacks, a CEOs affair with a colleague or poor personal conduct and more are constantly affecting the companies trading on the stock market.
If you are trying to invest in the stock market and put all your hopes in one or two stocks that you think are going to make it, you are making yourself extremely vulnerable to fluctuations in those particular companies fortunes. That is because you are exposing yourself to what is known as unsystematic risk, or that risk which is specific to a particular and not necessarily to other organizations.
In order to avoid this problem, there is an option to invest in what is known as a mutual fund. Mutual funds are portfolios of stocks that are managed professionally and which pool together money from various investors to invest in a wide variety of companies across industries, maturity levels, and geographies in order to minimize unsystematic risk. The main benefit of a mutual fund is this diversification aspect. Even when a particular company takes a hit, a well-diversified mutual fund will absorb this blow because it has a stake in so many other industries and companies which are doing just fine.
Other Advantages
Mutual funds present several other important advantages to isolated stock trading: lower transaction fees, liquidity, flexibility, and freedom. Mutual fund managers make large volume of trades daily, and so are able to take advantage of economies of scale and negotiate lower fees per transaction. Secondly, mutual funds are highly liquid, allowing you to sell your stocks on any given business day and receive your redeemed amount within 3-5 days. They also provide a great deal of flexibility to meet your investing desires. You can choose to go for a conservative approach, a balanced investment strategy, or to go for big returns by investing in high risk, high return ventures. Finally, since they are professionally managed, you are not constantly tied down by your stocks by having to do research and constantly keep track of your investments.
As an example of the advantages of mutual funds, consider Edelweiss Broking Ltd. – a reputed company with a team of over 60 years of cumulative experience. They understand that every investor has a different financial goal and risk appetite which makes diversification all the more important and hence they never rely on any second-hand information but spend a lot of time doing in-depth research and analysis to identify companies with strong growth and earnings potential and a strong product offering.
The team not only considers a stock’s last performance but closely looks into innumerable other factors – right from the company’s management credentials, its ability to disrupt the market, to its corporate governance – to recommend funds that are well diversified with a reasonable ROI for your future goals. You can view their mutual fund recommendations here.
As we can see, mutual funds are a safe way to invest in the stock market. While song lyrics about seizing the only opportunity one has and overcoming the anxiety and fear that accompanies that process may make for platinum hits, its probably not the way you want to actually lead your life. By investing in mutual funds, you can have the peace of mind that comes with a well-diversified portfolio that is immune to many fluctuations in individual stocks.