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Diversifying your investment portfolio simply means mitigating risk by spreading your investments across different types of investments, be it geographical locations, industries sectors, stocks, bonds, ETFs or any other type of investments which usually reacts differently to the same market event.
Most investors are always looking for the best time to enter a particular market. Therefore, understanding the market and knowing when to enter is a critical skill that must developed.
A principle of investing states that a portfolio containing many different assets and kinds of assets carries lower risk than a portfolio with only a few. This principle of diversification states that unsystemic risk may be alleviated through diversification, but systemic risk is more difficult to reduce. That is, the risk associated with a single investment or type of investment may be offset by the risk of another investment or type of investment.
Basic Processes of Investment Portfolio Diversification & Management:
- Establish Your Investment Objectives
- Decide on Your Investments Options
- Plan Your Investment Portfolio
- Study the Market
- Understand the level of risk involved in each asset and how much risk & volatility you’re willing to take on
- Speculate Your Asset Association
- Check the Investment Conditions
- Allocate Your Assets Strategically
- Monitor Your Investment Portfolio and Re-adjust your goals when necessary
The ultimate aim of diversifying your portfolio is to reduce the risk and increase the returns so you can continue to reach your investment and financial objectives as an investor.
