Diversification

You are probably well aware of the dangers associated with "putting all your eggs into one basket." This is why diversification is so important for investors.

What is diversification exactly?

Diversifying your portfolio of investments means that money is invested in a variety of investments. This could include diversifying across countries, markets, asset classes, from cash to shares, products, and investment managers.

The movements of investment markets are not in sync

Diversifying your investments is a good idea. Investment markets move in cycles. They start at a high point and then head toward a low point before returning to a high level.

Experts and no one can predict the high and low points. However, you might not need to if your investments are spread across a variety of asset classes, such as cash or shares. These asset classes may not always move in the same direction.

One asset may be rising in value while another may be declining. You can smoothen out your overall returns by diversifying among different investments. While you may not get the full benefit of an asset's performance, it is possible to offset this by avoiding any potential negative effects, such as losing all your money in an asset that is experiencing a major downturn.

Diversification can reduce risk

It's not only a way to protect your portfolio against major market movements, but it also allows you to spread your money among multiple investment types. This can help smoothen your returns over the years. When used with a long-term, regular funding strategy such as "dollar cost average," you don't have to worry about picking the right time to invest in or out.

It is clear that no one knows what the future holds. Diversifying your investments can help you protect your future, rather than relying only on one type.

How you can diversify?

Diversifying your investments can sound difficult, especially if there are limited funds available.

A managed investment is one option an investor might want to consider. Managed investments can provide investors with access to more underlying assets, such as cash, fixed income, and shares, as well as a variety of investment managers.

Which level of diversification is right for you?

Your goals, life stage, and your attitude toward risk will determine the right mix of investments for you.

For example, you might be interested in investments that maximize income and protect your capital. Alternately, regular income might be more important than capital growth.

The point is that there is no one "best" way of diversifying your investments. It all depends on your investment goals and strategies.