Investment is all about risks, but there are ways you can minimise these risks and make the most of your investments. One of such ways is by diversifying your portfolio. Diversification, as a strategy, helps to maintain a balance between low-risk investments and high risk. By diversifying your assets, you invest your money in multiple categories of assets such as property, shares, private equity, bonds, etc. You also diversify your assets within a category. For instance, if you are buying stocks, you can buy stocks across various industries such as energy, education, technology, health care, etc. Diversification of investment can also be in the form of investing in multiple product issuers and fund managers.
By diversifying, you can maintain stability in your investment because while one aspect is going through a rough patch, others are probably enjoying a boom season. With this variety in your portfolio, you can always even out even during the worst periods.
Benefits of Diversification
The importance of diversification in any investment strategy cannot be overemphasised. Most times, investors make the mistake of putting all their eggs in one basket because, at one point in time, that single investment looked invincible.
But anyone with investment experience knows how quickly things can turn around. The goose that lay golden eggs may suddenly become infertile. In the same way, assets that were once at the top may suddenly crash for any reason, some of which are unforeseen. Diversification could prevent this from happening to you and ensure that no matter how the economy fluctuates, your investment portfolio remains safe.
How to diversify your investment?
The first step to diversification is for you to review your current investments and determine if your portfolio is balanced enough. Write out all your investments and assets and calculate their worth. Doing this lets, you see most of the investments are.
If after reviewing your investment, you discover that most of your assets are restricted to one or two categories, then you should consider looking for other investments options. Research other categories of investments and put money into those categories too. Within the asset category that you are, you can also diversify if you notice that your investments focus solely on one aspect. For instance, if you discover that you have invested mostly into financial sector stocks, you can go into other sectors such as technology, AI, manufacturing, agriculture, etc. and invest too.
You can also diversify by investing overseas. There are so many investment opportunities outside Australia, and you can take advantage of these markets as well to diversify and stabilise your portfolio.
Another way you can invest is by using managed funds, listed investment company, exchange-traded fund, and managed account. These funds and company focus solely on investment and diversify their investments with asset categories or sectors. Investing in them is a simple way to spread your investments.
Review your investment and keep it diversified
Investments do not stay constant, and value rise and fall over time. You must review your investment periodically and ensure that you address any imbalance in value of the investment that is in one asset class.