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posted on:
6/10/2012 5:33:38 AM EST
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Diversifying Your Investments
money, investing, banners broker
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There are certain questions one must not overlook.
1. What level of risk are you prepared to expose your investments to in order to achieve your required return?
2. What are you aiming to achieve through your investments and in what timeframe can you afford to achieve these aims?
3. What level of investment knowledge do you possess and how confident are you as an investor?
The diversification of investments depends on how correlating the underlying investments are.
Positive correlation- the returns move up and down together and are influenced by similar factors such as interest rates and consumer demand.
Negative correlation-the returns move in opposite directions when faced with a single influencing factor.
No correlation- the performance of the returns are not related in any way given any factor.
Therefore the most effective diversification comes from combining investments to build a portfolio that is not directly correlated. For example, many investors who have placed money in stock market linked investments alone are finding themselves hard hit by losses caused by falling share prices and company closures in the current economic crisis. However investors who diversified with a mix of investments, some of which are not linked to the stock market, are typically less exposed to losses and therefore able to hold tight in riding out the recession.
To really benefit from the art of diversified investing you need to pay appropriate attention to asset allocation levels within your portfolio - ensuring your portfolio has adequate levels of investment across a range of non-correlated asset classes. With careful management many investors employing diversification find that they experience higher levels of return and lower levels of loss.
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 | | Great information, this will be shared and liked |
| | |  | | Greate Post Thanks for sharing. Will post it on Twitter ASAP!!! @yumiospublishing @gobzapr |
| | |  | | | |  | | All smart people know this. Do not put all your eggs in one basket. |
| | |  | | Great advice, Patrick ... seems like good common sense to diversify when investing. Thanks for sharing. |
| | |  | | Good overview on the value of diversification. Once you start generating significant capital to invest you want to grow it - safely. |
| | |  | | Great Blogpost.Thanks for sharing such great content. |
| | |  | | Very Nice and positive tips thanks for sharing |
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