What is investment diversification?
Very simply, to diversify means not putting all your eggs in one basket. If you invest in a range of assets, creating diversified investments, your overall risk may be less than if you invested in one asset alone. Diversified investments help you to manage risk without sacrificing returns.
Investment asset classes tend to follow trends, so if you have all your assets in the one asset class, then you are open to the market's rises and falls for that class of assets. That's why it can be a good idea to spread your investments to help smooth out the risks.
You can diversify investments within an asset class, for example, by buying shares from different companies. You can also diversify investments across the asset classes, with a mixed assortment of shares, property, bonds and cash.
When you have diversified investments, the value of your total investment portfolio won't be as affected by a drop in value of one company’s share price when compared to having invested solely in that company. But remember not to spread your investments too thin - seek expert advice on the optimum way to diversify investments.
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Did you know?
You are more likely to achieve your investment goals if you set a realistic and achievable time frame in which to get there.
It’s never too early to start investing money. In fact the earlier you start investing, the more time you have in the market to increase your chances of higher returns on your investments.
