Spreading our investments across various sectors or industries
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There are many studies demonstrating why diversification works, when we talk about investments, to put it simply by spreading your investments across various sectors or industries with low correlation to each other, you reduce price volatility. This is because different industries and sectors don’t move up and down at the same time or at the same rate. If you mix things up in your portfolio, you’re less likely to experience major drops, because as some sectors encounter tough times, others may be thriving. This provides for a more consistent overall portfolio performance.
- Intercorporate investments refer to investments one company makes in another.
- Intercorporate investments are typically categorized under generally accepted accounting principles, in three categories: investments in financial assets, investments in associates, and business combinations.
- The accounting treatment for intercorporate investments depends upon the classification of the assets, described as either held-to-maturity, held-for-trading, or available-for-sale.
- A company that holds an influential investment in an associate company -typically a 20% to 50% ownership interest – will account for their investment using the equity method of accounting.
- When accounting for business combinations, the company will use the acquisition method of accounting.