THE BENEFITS OF INVESTMENT DIVERSIFICATION

When you build an investment portfolio, it is normal to invest in what you know best – a few tech names you like or familiar stocks from ASX – but while that might give you a portfolio that feels comfortable, it is far from bulletproof. Why? Because it lacks one key element: diversification. 

Why you should diversify your portfolio

When diversifying your portfolio, your total investment nest egg isn’t weighted too heavily upon one thing – if your favourite tech stocks suddenly become volatile or the ASX takes a dramatic downturn, your portfolio as a whole could be vulnerable.

Less risk is just one benefit of diversification. Casting your investing net wider – across the globe if possible – also means you’ll be able to catch more growth opportunities.

Holding a well-diversified portfolio usually also leads to less volatile returns. A broader range of investments across global markets tends to generate a smoother return over time.

How to build a diversified portfolio and identifying what to invest in

As a starting point, consider holding a mix of various asset classes – stocks, commodities and more. Gain further diversification by picking different types of investments within the chosen asset classes.

One way of doing this is to filter investments based on different criteria. With Saxo, you can find individual investments based on geography, industry, issue and market capitalisation.

Another way of building a diversified portfolio is to apply a thematic investment approach, where you start by picking a few themes or long-term market trends. In Saxo’s award-winning trading platform, you can find a pool of themes handpicked for future upside potential. 

The themes range from energy to digitalisation and come with inspirational investment lists, giving you a well-diversified exposure.

If you prefer to “buy the entire theme” over investing in single instruments, the exchange traded funds (ETFs) give you instant diversification.

What is the ideal number of investments?

While there are different opinions about the optimal number of investments in a diversified portfolio, there is no correct answer to this question. However, most investors hold at least 15 to 20 instruments.

See how you can save more with Saxo. Stock and ETF brokerage on the ASX is just A$5, and NASDAQ NYSE from US$3. With greater choice, you can diversify your investment and save more on the costs with Saxo.

Source: http://intheback.com

Edited by: WinWin Audit 

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