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People invest their current surplus earnings to reap profits in the future. There are various kinds of investments. In the same manner, multiple rules guide and inform investment approaches. Diversification is one of the central principles to govern people with many investment interests. The doctrine of diversification discourages investors against concentrating their investments in one area such as an industry, a bond, stock, or country (Duarte, 2014; Hirt, Block & Basu, 2006). The principle urges individuals to spread their capital in different sectors and fields. The need for diversification is to cushion investors from adverse effects and shocks if economic conditions disfavor a given area of investment.
Mutual funds constitute one area of investment. The capital investment into the program can buy or acquire various assets like bonds, stock, and securities among others. The primary challenge with such an investment is that a professional pools money from different people and sources and invests in manners they deem best (Dogu, 2011). Nonetheless, mutual fund companies spend the money they gather in various areas and industries (Hirt, Back & Basu, 2006). As such, investing even in a single mutual fund can offer someone sufficient diversification (Dogu, 2011). In the case, the client has diversified inv…
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