BUILDING A DIVERSIFIED PORTFOLIO
Advice on how to minimise investment risk

There’s an old saying that says "Don't put all of your eggs in one basket." This saying is hugely relevant to the world of investments. All successful investors build portfolios that contain a wide range of different types of investments, a concept known as diversification.

What is investment diversification?

So what is a diversified portfolio? Well, a diversified portfolio may contain stocks and shares from a range of different industries – for example,  banks, retailers or the leisure industry.  It may also include buying bonds, investing in money markets or purchasing property.

The benefits of a diversified portfolio

Research has shown that diversified portfolios usually provide a consistent and stable yield. Diversified portfolios also reduce the investment risk. For example, if have invested all your money in one stock, and that stock fails, you could quite easily lose all your money in one swoop. However, if you invest your money in 10 stocks and one fails, but the other nine are doing well, you should be okay. Indeed, if one of these stocks does very well, you could even be in profit, despite your loss.

Diversification plans

So what makes a good investment portfolio? Well, a diversified portfolio will usually include stocks, bonds, property, and cash. Diversity not only applies to the types of investment, it also refers to the amount of risk that each carries. It may take time to diversify your portfolio. If you only have a small amount of money to invest at the outset, it may take time to build a diversified portfolio. If you have a large amount of money to invest at the outset, it is important to do your research and spread the risk by buying a range of different investments.

How diversification lowers your financial risk

By dividing your initial funds available for investment over a range of different types of investment, you should reduce your exposure to risk. Over time, you should see better and more consistent returns on your outlay. Investment experts also recommend that you spread your investment money evenly among your investments. For example, if you have £100,000 to invest, you should divide it into £25,000 lots investing in stocks, bonds, property and high interest savings accounts. 

 

>>> How to buy and sell stocks and shares		>>> Types of investments

>>> Online day trading		>>> Spread betting