Stock Investment Project in Examining Term Paper

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Because of this, I would expect that U.S. Energy would have performed better, but that has not been the case. None of the individual holdings are overly dependent upon energy costs, such as we would see in the airline industry, so the performance of the portfolio does not seem to have been overly affected by the rise in energy prices.

The proper approach to investing involves diversifying, not only across different companies, but also across different sectors of the economy. In a given year, one sector of the economy will be up and another will be down. One-year large cap growth stocks will be up and foreign stocks will be down. The next year real estate will be up and large cap growth may be down. If we knew in advance which sectors would be on top, investing would be easy, but we don't. As a result, diversification across different sectors is necessary. Professional investment advisors agree that diversification across 7-10 sectors is adequate for most investors. For larger investors, seeking to
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reduce risk as much as possible, diversification across up to sixteen sectors can be considered.

Systematic risk cannot be reduced substantially through diversification. This is because these risk factors affect the entire economy. It may be possible to mitigate this somewhat through diversification, but it cannot be eliminated. What can eliminate this risk is time. A consistent approach to investing in which the investor does not try to time the market is necessary. Getting in and out of markets may produce some short-term gains, but it will not produce consistently above average results. Investors who have achieved above average results are those who have learned to stay in the markets and diversify their holdings. Over time, a diversified portfolio will produce outstanding profits and is the best way to true wealth.

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