The Important Argument For Diversifying Your Wealth
The following article is a guest post and may contain affiliate links:
The importance of diversification in your portfolio
If you’re getting into investment, you might have heard of the notion of ‘diversifying your portfolio’. It means taking on more investments and to a lot of people, that sounds both involving and risky. But the truth is that it’s a lot less risk overall even if it does demand a little more effort. Here, we’ll go into the truth about diversification and how to do it properly.
The simple answer of why you want to diversify is that it’s less risky. True, your portfolio is bigger and you’re following more investments. But your fortunes aren’t tied down to just one. Instead, you choose different investments in different markets entirely. Then the losses you make in one investment aren’t tied to the gains you might make in another. You’re mitigating risk by keeping your money apart. It also leaves you free to put a portion of your wealth in more aggressive investment options. Which increases the possibility for real growth.
When investing, those aiming for low risk usually go for bonds. They’re low risk, but low reward, as are all fixed income investments. Meaning slow growth. It’s possible to still leave a good portion of your money safe in bonds while still growing, however. Stocks are higher risk, yes, but higher reward. Real estate can help you hedge against inflation with real asset value. Operating in more than one market at once means that any risk to one might be mitigated by a rise in the other. You don’t need a whole lot of different investments. You just need them in different markets.
Different markets means wholly different. Do you want growth and insulation from domestic investments? Then you need to consider international opportunities. For example, think of opportunities like foreign currency FD (or fixed deposits). Places like East Asia have been showing a lot of benefit to investors thanks to the value of globalization, for instance. This means a lot of fixed deposits overseas see much larger rises in interest. It can also help you weather some of the more volatile aspects of other currency trading options. You can just keep your money there and wait for the market to shift back in your favor again.
Diversification builds knowledge
If you take charge of diversifying your wealth, it means taking charge of your own finances. The reason that many investors aren’t seeing the long-term growth they want is because of relying on options like fund managers. No-one is worth relying on for every answer, not when it comes to investment. You should stop relying on managers you have to pay for and look into building your own portfolio.
If you want to make more money and want less risk, diversification is the key. In taking the time to find new opportunities to invest a little at a time, you also make investing more fun as learn more about it. In the end of the day, it’s always smarter not to put all your eggs in one basket.