Why should I diversify my Investments?
Diversification is phrase that we hear a lot and very often it is connected to our investments.
Financial advisors keep telling us that we should look to diversify our investments and spread our money across different sectors wherever possible, but why do they tell us to do this?
The answer is very straightforward and probably more negative than what most people than most people care to appreciate. The reason is to spread the risk as ever since 2008 investing in almost anything has carried a certain degree of risk. In fact, gone are the days when there were such things as ‘risk-free investments’. After all, even keeping money in a bank carries an aspect of risk, just ask anyone who had money in bank accounts in Cyprus.
As times change most investors appreciate that they do need to accept some form of risk but naturally most want this to be kept to the absolutely minimum. This is why it pays to diversify your investments. If one investment performs badly, you will still have the other investments to prop it up or restrict your losses. Having all your eggs in one basket has never been wise but this is increasingly the case when we talk about investments.
When you do look to invest, you will want to find the right balance between risk and return, one that suits your lifestyle and where you are personally in the investment life cycle. As a general rule, the older you are, the less risk you should be exposing yourself to as your chances of recouping any losses will be restricted.
You also need to consider what your investment objectives are. You may be looking to gain and income, capital growth or more often than not, a combination of the two. A good financial advisor will be able to advise you on a portfolio that matches your objectives. This will probably include a variety of different investments including stocks and shares, mutual funds, bonds and of course property.
Property is and always has been a great investment but it is something that is often ignored by financial advisers who tend to prefer stock market related investments. This is a risky approach as once again that term ‘diversification’ would suggest that having a combination of stock market and property investments as being the ideal solution. Having too strong an emphasis on either would be unwise, just as unwise as having one without the other.
The advantage of investing in property is that it often meets all of investors’ objectives in that it provides both potential for capital growth as well as providing an income. It is also an attractive investment for those who are naturally cautious as it is a tangible asset that you can see and touch – something that gives a surprising amount of reassurance to many.
Investment properties at the present time are also offering great returns for minimal amount of risk.
The main reason for this is that there is a high demand for rental properties both domestically and abroad. An example of guaranteed returns that you could expect would be from the New Nordic Group who are based in Pattaya, Thailand.
New Nordic Group are offering returns of 10% p.a. for periods of five to twenty years. When these sorts of returns are talked about most financial advisors should take note and consider them as part of your diversified portfolio.
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