As an investor, you must always look for new ways of diversifying your investment. This means that you should have a diversified portfolio instead of relying on one single investment for all your returns. Talking to an industry expert Frederick Baerenz will open you to some alternative investments that you may want to explore for your diversification.
What Are the Benefits of Diversification?
Diversification helps you minimize your risk. Suppose unfavorable business conditions lead to poor performance in one investment, and another investment performs better in the same period. This reduces the potential loss significantly.
It also helps preserve capital, particularly among individuals seeking capital preservation and not accumulation. This is important among individuals approaching retirement. Diversification is one prudent way to protect their life-long savings.
How Can You Diversify Your Investments?
Diversification means spreading your risks among different classes of assets. An investor seeking diversification will opt for a mix of both growth and defensive assets.
- Growth assets: Includes investment such as property or shares. They offer long-term capital gains but hold a high level of risk.
- Defensive assets: Refers to investment with fixed interest. They have a low long-term return, with a low level of risk due to low volatility.
It would help if you balanced your diversified portfolio by investing in both the growth and defensive assets. Over time, the determinants of different assets’ performance are:
- Interest rates
- Current market conditions
- Interest rates
This means that no investment is more consistent in returns than the other. For example, periods of increased share volatility may seriously damage your portfolio. At the same time, your investments in asset classes such as property or fixed interest may gain, smoothening the returns of your entire portfolio.
Other Assets to Consider in Diversification
You can use the Listed Investment Companies (LIC) to invest in different asset types such as shares, property, unlisted companies, and fixed interest. LICs are flexible, allowing you to buy or sell your shares at any time.
Investing in Exchange Traded Funds (EFTs) is another good option. EFTs expose you to portfolio investments that form a particular index, such as the S&P. Like LICs, they offer simple ways of diversifying a portfolio and can be traded in stock exchanges.
There are so many options for diversifying investments and reducing risks. It will be wise to engage a reputable fund manager, CEO Frederick Baerenz so that you do not invest blindly. All in all, you stand to gain considerably by diversifying in the right assets.