All Investors Need To Diversify Their Investment Portfolio
Stock-Markets / Investing 2015 Sep 14, 2015 - 01:30 PM GMT
Most people that make financial investments understand how important it is to research before money is invested and see how hard it can be without diversifying an investment portfolio. This basically means that the money is put into different assets like property, money markets, bonds or equities. At the same time, international market investment is also included in diversification, meaning that the money is divided in different markets, not just one.
In order to understand why an investment portfolio needs to be diversified, here are some facts you have to always remember.
Assets Act Differently
Absolutely all assets can act differently at different times. As an example, when most shares perform really well, bonds will not do so great. This is a rule that does not always apply but in most cases it is a reality. Generally speaking, shares have a higher popularity when the interest rates are lower.
Market Conditions Influence Investments
Industries will react in a different way in specific market conditions. As an example, a company that sells umbrellas will be a better investment during fall and winter than summer. Varying sales is common and diversification can increase profits when market conditions are different.
Natural Disasters Can Be Avoided
As you invest in various geographic areas, natural disasters will not have a huge effect on your portfolio. Earthquakes are the best possible example. Whenever a major one appears, the entire country is affected and we are faced with investment problems for all niches.
You Could Lose All Your Money
If the entire investment portfolio is put in the same basket, huge problems can appear. A recent example of huge problems appeared when people in New Zealand invested in various safe investments that had a good return rate that was known. Unfortunately, this led towards problems since people invested all the money in a single firm. Many lost money because of this. Asset class diversification can always lower risks, which is vital for every single investor out there.
Global Financial Crisis
We recently went through a huge Global financial crisis. This actually highlighted that the investors that did invest in cash funds had a really great idea. US treasuries from around the world declared that this is proof that investors should have such assets since they do offer stability.
Conclusions
On the whole, we can say that it is always smart to diversify the investment portfolio that you have at the moment. This is not just due to the various reasons that were mentioned above. Many others can be said. We can say that research is important in anything that we do in business. For instance, if we want car insurance for our company’s fleet, we need to look at assets like Comparaencasa.com so that we can easily choose what is better for us.
The great news is that there are always different options that are available for investors, no matter the budget that is currently available. You just need to take the time to analyze opportunities. This is how you can be successful on the long run.
By Boris Dzhingarov
© 2015 Copyright Boris Dzhingarov - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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