No matter how established, large or reputable a blue-chip stock may appear, it's essential to remember that it is still vulnerable to company-specific risks and can face a downfall unexpectedly or due to prolonged decline and mismanagement.
Consider the sudden collapse of giants like Washington Mutual, Enron and Lehman Brothers, or the gradual demise of once-dominant players like Kodak, Sears and Blockbuster.
These examples underscore the reality that idiosyncratic risk – risk unique to a particular company – is hardly ever worth taking, especially when investors concentrate their portfolios on a limited number of stocks. This is where the adage that "diversification is the only free lunch in investing" comes into play.
For long-term, buy-and-hold investors, opting for a diversified mutual fund or exchange-traded fund (ETF) presents a far wiser strategy than picking individual stocks. These funds can spread risk across various sectors, countries and asset classes, helping to reduce volatility.
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This broader diversification not only minimizes the impact of potential significant losses but also offers investors peace of mind, knowing that their portfolio is built to endure and progress steadily over time.
Here are seven of the best Vanguard funds to buy and hold in 2024:
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