Why Young Investors Should Diversify

Well, really all investors should diversity, both young and old, but my blog is all about the importance of getting an early start earning, saving and investing money, so this is directed toward my fellow teenagers. Uncertainty about how and where to invest your money is what prevents many people from getting started. People worry they will make the wrong decision and will lose money. This is a valid concern, because you can lose money, especially if you try to pick just a few stocks that you think will be big winners. Maybe they will be, but this approach increases your risk of losing money. That is why many investment advisors - including the great Warren Buffett - recommend taking a practical and conservative approach and "diversifying" your investments.

Diversification, which is spreading your money out over many different investments, helps reduce the volatility (extreme highs and lows) you might experience if you just invest in a few individual stocks. For example, Tesla (TSLA), maker of electric cars, solar panels and batteries, is a popular stock to own, but also very volatile. Tesla has done very well overall, but it has also experienced significant downturns in recent years. Coinbase (COIN) is another example. The company allows account holders to buy and sell crypto currencies. Being tied to the success or failure of the crypto market means Coinbase has seen wild swings in stock price. The stock has actually fallen 46% over the past six months! It's okay to invest a small amount of money in these higher risk stocks, as there is also potential for significant gains. But as most experts would tell you, it's not smart to put all your eggs in one basket.

The easiest way to diversify is to invest in index funds, such as an "S&P 500 index" fund or a "Large-Cap" fund or a "technology" fund. Doing this automatically spreads your money throughout lots different stocks.

Here some popular index funds and their symbols:

• Vangaurd 500 Index Fund  (VOO) - invests in the S&P 500

• Schwab S&P 500 Index Fund (SWPPX) - also invests in the S&P 500

• Vanguard Total Stock Market ETF (VTI) - basically covers the whole stock market

• Invesco QQQ Trust (QQQ) - invests in the NASDAQ 100 index

• Schwab U.S. Large-Cap ETF (SCHX) - invests in a diversifeid portfolio of large publicly traded stocks

• iShares US Technology ETF (IYW) - invests in US technology companies, like software and computer makers

There are lots of other index funds that invest in everything from small-cap stocks to international stocks to renewable energy stocks. Its good to own a diversified group of funds, in order to spread the risk and increase the potential of positive gains over the long-term. I hope this gives you a better understanding of how to diversify and encourages you to get started.

Happy investing!