Many investors understand the importance of having a well-diversified stock portfolio.
However, what some lack is the knowledge of what helps make a well-diversified portfolio. When investing in stocks, it's important to look for securities in different economic sectors. While similar sectors and securities may help enhance the value of your portfolio in times of that sector's growth, the opposite is also true when a sector experiences the downturn. For instance, if your portfolio was heavily weighted in technology, you probably experienced tremendous gains in the late 1990s and the early part of 2000. However, many also experienced the agony of great loss as the sector experienced a severe downturn.