Portfolio Diversification

Posted on: 12 Jul, 21

Trying to navigate the ups and downs of market returns, investors seem to naturally want to jump in at the lows and cash out at the highs. But no one can predict when those will occur. By maintaining proper portfolio diversification and avoiding the pitfalls of market timing, you’ll have the foundation needed to help manage your overall exposure to market volatility. Historically, the stock market has been up more than down.

If we could see into the future, there would be no need to diversify our investments. We could merely choose a date when we needed our money back, then select the investment that would provide the highest return to that date. It might be a company share, or a bond, or gold, or any other kind of asset. The problem is that we do not have the gift of foresight.

Combining a number of different investments

Diversification helps to address this uncertainty by combining a number of different investments. In order to maximise the performance potential of a diversified portfolio, managers actively change the mix of assets they hold to reflect the prevailing market conditions. These changes can be made at a number of levels, including the overall asset mix, the target markets within each asset class and the risk profile of underlying funds within markets.

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