How can you use diversification to develop a strategic plan?

Expert Answers
readerofbooks eNotes educator| Certified Educator

Being diversified is an important strategy in many ways. Let me name a few of them.

First, if you are dealing with equities, you need to realize that there can be many dangers. There are no guarantees. So, it is wise not to put all your money in one company or for that matter one sector of the market. Diversity is key. When one sector goes down, another may go up. Protection is the point here.

Second, with diversification, you have the ability to sell stocks that are doing well and wait until poorer performing stocks do better. It is only when a person diversifies that this is possible. If you have time on your side, then you will not have to sell when things are going poorly. You can wait things out, which is usually a good idea, since stocks are cyclical many times.