Want to diversify? Here's how
There's no one recipe for effective investing. However, there is a golden thread that runs through all the most successful strategies: diversifying. Read on to learn more about how to diversify your portfolio and improve your chances of finding financial success.
What is diversifying? Diversifying your financial portfolio simply means that you're invested in different asset classes to help reduce your overall risk. You can diversify within asset classes, across asset classes, across geographies and with different currencies. You can use some of them or all of them - the choice is yours!
Diversify within an asset class
Say for example you wanted to invest in only one asset class, like equities. If you wanted to diversify your portfolio, you could then invest in different kinds of equites. These could be part of mining companies (which are an example of cyclical stocks) and grocery retailers (which are an example of defensive stocks). By investing in cyclical stocks that are heavily reliant on the economy's performance and defensive stocks that aren't, you can help reduce the risk of your portfolio.
Diversify across asset classes
Instead of having many investments in the same asset class, you would have investments in each of the different asset classes: property, equity, cash, and bonds. This way, even if one asset class isn't doing well, the others can help compensate for any losses.
Diversify across geographies
In this case, you would have investments that are based in different parts of the world. Different countries have different economic profiles, which means that some parts of the world will experience good economic conditions while others hit a dip. As a result, you should be able to benefit from different performance returns.
Diversify using different currencies
Investing in different countries can help reduce your overall risk, but you can reduce that risk even further by investing in different currencies. That's because investing different currencies means that you'll earn returns in different currencies. So if you have investments in South Africa and in the United States of America, you'll be earning returns in rands and dollars. And when one currency is doing badly, the other can help balance out any losses.
There are plenty of advantages to diversifying your portfolio. Not only does it help reduce your overall risk, but it also helps you avoid making emotional decisions about your investments when the economy takes a turn for the worse. Your financial adviser can help you balance out your portfolio so that you can invest with peace of mind and confidence in the financial future.
This document is meant only as information and should not be taken as financial advice. For tailored financial advice, please contact your financial adviser. Discovery Life Investment Services Pty (Ltd): Registration number 2007/005969/07, branded as Discovery Invest, is an authorised financial services provider. All life assurance products are underwritten by Discovery Life Ltd. Registration number: 1966/003901/06, a licensed life Insurer, an authorised financial service provider and registered credit provider, NCR registration number NCRCP3555. All boosts are offered through the insurer, Discovery Life Limited. The insurer reserves the right to review and change the qualifying requirements for boosts at any time. Product rules, terms and conditions apply.
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