Of course I’m diversified, I’ve got Microsoft and Intel!
OK! It’s an old joke – but it is still relevant today.
Diversifying your portfolio is one of the most fundamental pieces of an investment strategy. It’s essentially the old aphorism that says you shouldn’t put all your eggs in one basket.
You should realise that diversification isn’t so much about creating wealth as it is preserving wealth. In short, it’s risk reduction.
This is where alternative investments come into their own…
We highly recommend assessing your own personal risk tolerance and diversifying investments.
The time to practice disciplined investing with a diversified portfolio is before diversification becomes a necessity. By the time an average investor “reacts” to the market, 80% of the damage is already done. The motive for diversification is to reduce risk by spreading your investments between different funds, equities, or financial instruments, your portfolio is then less exposed to the downside risk of any one of your investments.
Diversification, of course, is about much more than just buying shares in a variety of companies instead of just one. Real investment diversification means investing across all asset classes — shares, bonds, property, alternatives such as private equity and tangibles, and even cash. Geographical diversity is also very important, you should think globally. Just be sure it fits with your risk tolerance.
We have said this before and we will say it again. An intelligent asset allocation that is designed around your risk tolerance and is truly diversified is your best defense against traditional market volatility.
Diversify your strategies as well as your assets
By taking a disciplined and well-informed approach not only to diversification but also other factors such as buy-and-hold and dollar-cost averaging strategies; this truly diverse approach is the best option right now.
“Having a percentage of your portfolio spread among stocks, bonds, cash, and alternative assets is the core of diversification, but how you divide your portfolio is a personal decision and depends on your risk tolerance, time horizon, goals, and so on”.
Certainly every investor’s situation is different – but one thing we all have in common is a proper asset allocation strategy that will allow you to avoid the negative effects resulting from placing all your eggs in one basket.
Over-diversifying can be just as bad as putting all your eggs in one basket. It’s not just about buying into a large variety of assets.
Information, as always, is the key to a successful investment strategy. You can dramatically worsen your portfolio’s risk/reward potential by adding too many investments which serve the same purpose, operate in the same geographic location, may not be tax efficient, are correlated to each other, or are simply poor quality holdings added in just for the sake of diversification.
If you’re interested in investing in alternative investments, and as a sophisticated investor you should be; then speak with us to discover all of the best options available. The Alternative Investment Platform enables you identify the highest performing, the most secure and most promising alternative investment opportunities that will preserve your hard-earned wealth.
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