Chapter 2. Advanced Diversification and Risk Management

In Chapter 1, “Putting Together a Winning Investment Portfolio,” you considered the concept of diversification, and ways in which proper portfolio diversification can provide additional profit while reducing risk. In this chapter, you examine certain active procedures associated with proper diversification, look at a sample diversified portfolio, explore some different ways of recognizing risks associated with investment positions, and consider the structure of investment vehicles, mutual funds, and exchange traded funds (ETFs) that you may want to employ as your investment vehicles.

An Example of Well-Balanced Diversification

A well-diversified portfolio consists of segments of investments ...

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