GROCERIES, BASKETS AND SHELVES

Get the skinny on what ‘portfolio diversification’ is all about

Don’t put all your eggs in one basket.

This rule is as true in the world of investment as it is in everything else.

If you’ve seen any film remotely relating to Wall Street, you are most likely familiar with the term ‘diversified portfolio’.

This is the equivalent of putting not only your eggs, but also your bacon, apples and other groceries into several baskets, and putting those baskets on different shelves.

In short, a diversified portfolio contains investments across different asset classes — bonds, shares, property, cash, and fixed interest — and across different sectors within each asset class (your groceries and baskets).

To further diversify, you can even invest across different international markets (the shelves).

The purpose of diversification, is to manage the risk/reward trade–off of your investments and to limit your exposure to any single asset, so you will be less likely to suffer a big loss over time.

You should review your investments regularly to ensure their returns are in line with your expectations and needs.

If your returns are not on target, you should rebalance your portfolio by selling assets you have too many of and buying the types of assets your portfolio is short on.

Or, you could invest extra funds in under–performing asset classes in your portfolio.

The information in this article is provided for general information only and does not constitute financial advice. You should consult with a registered financial advisor if you think this information relates to your unique circumstances.