Top Five Ways To Diversify

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  1. Too many investment portfolios suffer from inadequate diversification.
  2. Individual holdings within many mutual funds owned are often the same, or quite similar.
  3. Too many investors are not aware they lack diversification.

Diversification strategies are essential, time-tested tools for every portfolio.
They improve your chances of achieving better consistency of long-term returns.

Basic diversification involves spreading your risks across different selections.
All within the allocation targets set within your investment plan.

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Broad diversification is one necessary safeguard.
You don’t want problems arising in any asset class to ruin your well designed portfolio.

Diversification increases the odds of you being right more often than wrong.
If some selections are suffering, others can help cushion the rest of the portfolio.

Here are five simple ways to achieve your portfolio diversification:

  • Asset Classes: Choosing different asset classes for the plan is a prudent step. Equities, bonds, cash, commodities and real estate are most common.
  • Economic Regions: Portfolios may include selections from Canada and other regions. Like the USA, Europe, Far East and emerging countries.
  • Time to Maturity: A portion of the portfolio could have a range of investment maturities. From as short as 30 days to as long as 30 years.
  • Foreign Currencies: Investment selections can be purchased in currencies other than Canadian funds. Such as US funds, the Euro or hedged to our Loonie.
  • Investment Quality: High investment quality trumps reaching out for yield. Trading quality for higher yields increases the potential for bigger losses.

Portfolios ought to contain a variety of investments that don’t all move in unison.
Although, seasoned investors know that is not always possible.

Diversification should be front and centre in managing your portfolio.
Invest your nest egg to reduce portfolio risks and aim for more consistent results.

That makes for happier investing.
I welcome your questions.

Talk soon,

Adrian

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avatarAdrian Mastracci - KCM Wealth Management posted Monday, February 4th, 2013.

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