Re: Diversification
When you are young, you can afford to take larger risks, if in exchange you are getting the opportunity for larger returns... and you have a consistant stream of income.
If you are young and your port is small, again you can take larger risks, because theoretically, the value can be easily replaced.
Diversification, can be as simple as 5 seperate stocks. The main point of diversification is that no single event should be able to wipe you out. As I think Ed pointed out, you wouldn't take your whole poker bankroll and sit down with it at a NL table (that would be an unacceptably large risk), or place it all on black [img]/images/graemlins/smile.gif[/img]
As you get older and your port gets larger, you can still take some wild risks, but you should only do so with a portion of your portfolio. Some of the experts recommend that you take 10% of your port and use it to make riskier "bets" than your normal risk tolerance for the remainder of your port. If you are successful, the extra risk can have a substantial impact on your total return, while if you are wrong, the total impact of the risk is relatively small.
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