Prudent advice is diversify

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Different types of savings and investments do different things. Having money in the bank protects it against bad events that happen to shareholders.

Buying shares helps you earn more money than if you’d left all your savings in the bank. Buying a second property or property shares helps your money grow, even when external events affect the stock market.

When you plan your financial future, cover as many bases as possible. Some of your money should be in the bank in the form of an emergency fund, some in shares, some in property.

Why diversify?

When you buy shares, you assume the company will continue to do good business for a long time, so your share price will rise.

Unfortunately, there are no guarantees. Things go wrong with companies sometimes. The market might turn, companies can be mismanaged or customers might no longer want a product. In any of these events, the company’s share price could go down to below what you paid for a share.

If you sell your shares at a lower price, you will end up with less money than you had before you bought. This is called investment risk.

If you used all your money to buy shares in only one company and its share price dropped dramatically, you’d be in a worse financial position. In that case, you would have been better off leaving your money in the bank.

You can protect your money when buying shares by investing in different industries and companies.

Different industries

Companies are affected by things that happen. For example, if there are floods in a rice-producing area, companies that make rice-based products will likely be affected. Such an event can cause the company to earn less money in a year. Many investors will want to sell their shares in it, bringing the share price down.

Different companies

Buy different companies to ensure you’re invested in different industries.

However, you might want to own shares in two companies in the same industry. This is a good idea to protect your money against things that can go wrong within a company.