7 Rules For Investing - Diversify Your Portfolio - Rule 1
July 16, 2014
Diversify your portfolio
The aim of diversification is to ensure you have a spread of investments as different investments do not move in the same way at the same time. This means that while one investment might be losing value it could be counter balanced by another that is gaining.
There are a number of different ways that you can diversify your portfolio:
Asset classes –Invest across different asset classes. The main asset classes are Shares, Property ,Cash and Fixed Interest.
Market sector – Spreading your shares across and within different industries such as banking, resources, industrial, agricultural and pharmaceutical aims to smooth out unsystematic risk events in a portfolio so that the positive performance of some investments will neutralise the negative performance of others as various industries perform differently under the same conditions
Fund Managers – Using different investment managers with different investment styles can further increase diversification. This can be done by selecting a range of managed funds or by choosing a manage-the-manager fund, also known as a ‘multi-manager’ fund.
Geographical – By investing in different countries, you can take advantage of varying economic conditions.
The advantage of diversifying your portfolio is to help take the guess work out of which investments are going to perform well over different market conditions and time periods. By spreading your investments across a number of different assets you don’t need to pick winners. With no reliable pattern of performance from one year to the next we realise that past performance is not indicative of future performance.
Source:Colonial First State
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