Di­ver­sity

Finweek English Edition - - MONEY -

Any f inan­cial ad­viser worth his salt will tell you that a well-di­ver­sif ied port­fo­lio should have the ap­pro­pri­ate lev­els of as­set ex­po­sure as well as a good mix of both lo­cal and off­shore as­sets. So, it stands to rea­son that an im­por­tant as­pect of port­fo­lio di­ver­si­fi­ca­tion is for­eign in­vest­ment.

Re­duc­ing the vo­latil­ity of the in­vest­ment port­fo­lio so that it is less likely to be inf lu­enced by lo­cal con­di­tions is an im­por­tant fea­ture of off­shore in­vest­ments. This type of di­ver­si­fi­ca­tion also al­lows for ex­po­sure to for­eign eq­ui­ties in

Apart f rom t he gen­er­ally ac­cepted con­sen­sus among in­vest­ment pro­fes­sion­als that di­ver­si­fi­ca­tion of your port­fo­lio is a way to yield higher re­turns, it is also a way of re­duc­ing the se­cu­rity risk to those in­vest­ments.

Sandy van der Zan­den, a CFP with Pioneer Fi­nan­cial Plan­ning, says that one of the best ways to pro­tect your in­vest­ment is through proper in­vest­ment di­ver­si­fi­ca­tion. “Don’t hold all your eggs in one bas­ket,” he re­lays the old wis­dom, cit­ing three typ­i­cal as­pects of in­vest­ment di­ver­si­fi­ca­tion: AD­MIN­IS­TRA­TOR DI­VER­SI­FI­CA­TION This type of di­ver­si­fi­ca­tion en­tails hold-

Off­shore money spreads ge­o­graph­i­cal risk larger, stronger economies and the wider, global mar­ket. It is also a hedge against a weak rand.

It is a gen­er­ally ac­cepted prin­ci­ple that in or­der to reap the re­wards of off­shore in­vest­ment, a longer in­vest­ment pe­riod is re­quired. Short-term off­shore in­vest­ments can tend to be quite volatile, es­pe­cially if the ex­change rate f luc­tu­ates sig­nif­i­cantly dur­ing this time.

Off­shore in­vest­ments can be made through a range of as­sets classes and some lo­cal f unds even have an el­e­ment of off­shore di­ver­si­fi­ca­tion in their in­vest­ments.

Types of in­vest­ment di­ver­si­fi­ca­tion ing your in­vest­ments with more than one in­vest­ment ad­min­is­tra­tor. To­day, the need for this type of di­ver­si­fi­ca­tion has been re­duced through good le­gal pro­tec­tion for in­vestors. All ad­min­is­tra­tors are au­dited and thor­oughly reg­u­lated to pro­tect client in­ter­ests. FUND DI­VER­SI­FI­CA­TION In this sce­nario, you hold more than one type of fund; any­thing from an­nu­ities to rainy day funds. Gen­er­ally this is a good strat­egy, how­ever en­sure that you do not over-di­ver­sify and thereby nul­lify any po­ten­tial for re­turns. AS­SET DI­VER­SI­FI­CA­TION This is the cor­ner­stone of mod­ern

While wealth cre­ation and maki ng money f rom t heir i nvest­ments has to be one of the pri­mary goals for any in­vestor, wealth preser­va­tion – that of safe­guard­ing and re­duc­ing the risk of los­ing money – is prob­a­bly one of t he pri­mary con­cerns. To­gether with the many as­set classes that al­low for a di­ver­sif ied port­fo­lio, off­shore ex­po­sure is an­other di­ver­si­fi­ca­tion ap­proach that al­lows for a good as­set al­lo­ca­tion plan as well as a well­rounded in­vest­ment port­fo­lio that also com­bats volatilit y in both lo­cal and in­ter­na­tional mar­kets. in­vest­ment the­ory, where, by hold­ing var­i­ous as­sets, you are able to re­duce the risk of your in­vest­ments and may even im­prove the re­turn over time. This is of­ten re­ferred to as the last ‘ free lunch’ in in­vest­ment and can be very valu­able to you as the in­vestor.

Ac­cord­ing to Van der Zan­den, di­ver­si­fi­ca­tion does come with one warn­ing though: di­ver­sify your in­vest­ments and not your in­vest­ment ad­viser. The re­la­tion­ship with an ad­viser is de­vel­oped over time. This al­lows the ad­viser to bet­ter un­der­stand your cir­cum­stances and ex­pec­ta­tions so that he can best ad­vise you, as well as al­low for time sav­ing, avoid­ance of in­vest­ment du­pli­ca­tion and even re­duce over­all in­vest­ment risk.

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