If you have heard of the word, ‘diversification’ and never seem to understand its significance to investing and achieving your financial goals, keep reading, this is for you.
To diversify your portfolio means to distribute or allocate your funds to different investments in different asset classes. This approach helps mitigate against exposing all your investments to the same type of risk. A diversified portfolio is one which consists of a mix of asset classes.
Here are some advantages of a diversified investment portfolio:
Optimized Returns: Diversifying your portfolio enables you to optimize your returns. When a portfolio is well-diversified, and one instrument performs poorly over some time, other instruments in your portfolio will likely earn you returns.
Minimized Risks: A diversified investment portfolio will mitigate the risks associated with investing as your portfolio will have a mix of stocks, mutual funds, etc. thereby spreading the risks.
Peace of Mind: Diversification ensures you are not putting all your eggs in one basket. You can sleep better knowing that the risk is spread across different asset classes in your portfolio.
Diversifying your portfolio
If you have been winging it one investment plan, and have decided not to put all your eggs in one basket. Here is what you need to build a diversified portfolio:
1. Create a mix: A diversified investment portfolio should have a mix of different instruments ranging from stocks, mutual funds, bonds, etc. Having a variety of asset classes ensure your portfolio is balanced. You can start with Mutual funds, stocks, bonds and so on.
2. Choose instruments with Varying Risk levels: Allocate instruments with varying risks to your portfolio as this minimizes your exposure and the effects of market volatility on your portfolio. A diversified portfolio may consist of high, medium and low-risk instruments. As such, the risk is spread optimally across all asset classes in your portfolio.
3. Go Foreign: One strategy for building a diversified portfolio is to have both local and foreign currency investments as a mix. If you have only local currency investments, you should consider investing in foreign currency investments like the Cordros Dollar Fund, Eurobonds, etc. These will help to hedge your investment and assets against currency risks such as devaluation and inflation.
Finally, you may find a financial advisor to help you build and manage your investment portfolio. At Cordros, our clients have access to financial advisors that help them in making smart investment decisions to achieve their financial goals. You too can enjoy this. To begin, call 07002673767 or email [email protected].
Let’s help you grow!