Planning for your financial future will give you peace of mind today. This week, our Expert Qualified Financial Advisor, Eoin Liston, Premier Financial Services, discusses diversification in your investments. We have all heard this phrase in some context over our lifetimes. In the context of investments it is used as an analogy for Investment Diversification. Diversification is a technique that aims to reduce Investment risk by allocating investments among various Financial Asset Classes ( Equities, Bonds, Property Cash & alternatives), industries and other categories.
The high price of bad timing.
Research data from DALBAR shows that the decisions investors make about diversification within and across asset classes and trying to time when to get into or out of the market, cause them to generate far lower returns than the overall market.
Why you should diversify?
The goal of diversification is not necessarily to boost performance—it won’t ensure gains or guarantee against losses. But once you choose to target a level of risk based on your goals, time horizon, and tolerance for volatility, diversification may provide the potential to improve returns for that level of risk.
Rebalancing - Diversification is not a one-time task.
Once you have a target mix, you need to keep it on track with periodic checkups and rebalancing. If you don’t rebalance, a good run in stocks could leave your portfolio with
a risk level that is inconsistent with your goal and strategy.
Investing is an ongoing process.
Investing is an ongoing process. You need to create a plan, choose appropriate investments, and then conduct regular checkups to keep your portfolio on track. Here are the three steps to do just that:
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