While adding diversity to your portfolio is highly beneficial, it can also be difficult to know how to effectively branch out your investments. At Flagship Investments, we’re committed to helping investors learn the best ways to build their portfolios to help them minimise risk and protect their investments. That’s why we have put together our top five tips to help you diversify your portfolio and secure your financial future.
Why is Portfolio Diversification Important?
As an investor, investing in diversification is critical, as a diverse portfolio not only improves your chances of maximising returns but also minimises risks associated with market volatility. That way, if a particular asset or business sector in your portfolio performs badly, it’s likely you’ll have other investments that will rise and compensate for this. As a result, these high-performing investments will balance out the resulting loss, reducing your financial risk.
1. Identify the Gaps in Your Portfolio
The first step to investment portfolio diversification is to take a look at your current assets and identify which sectors you aren’t already invested in. Understanding how to diversify a portfolio starts by identifying gaps where additional sectors or asset types can enhance balance and potential growth:
- Money in your savings account
- Property investments
- Your superannuation
- Shares
- Bonds and index funds
- Managed funds
2. Explore Different Markets
You might take a look at your portfolio and see that you’ve invested in a range of assets across all kinds of different sectors, but you’re still only invested in one market. While this is a great start, there’s more than one investment market out there, and they could help you if the one market you’re invested in crashes.
- Diversifying investments across different markets, such as shares, bonds, property, and international exchanges, ensures that you tap into varied economic dynamics, thereby reducing potential risks.
3. Go Global
We briefly mentioned international stock exchanges in our second tip, but the potential that these markets possess cannot be overstated. Not only will investing in these international markets give you more opportunities, but it can also provide you with more protection should Australia’s economy perform badly.
4. Don’t Be Afraid to Sell
Diversifying your investment portfolio can give you more leeway to hold poorly-performing investments for longer to see if they bounce back. However, while holding can work out in your favour, there’s also power in knowing when to cut your losses, and a diversified portfolio can make this easier too.
Selling certain investments after they have dropped can feel like going backwards, but the diversity in your portfolio will help you to recover more quickly. Additionally, you can use the funds you have salvaged to reinvest in other markets and continue your portfolio diversification with other, more promising markets.
5. Invest in Australian LICs, ETFs, and Managed Funds
Exchange-traded funds, managed funds, and listed investment companies research the market on behalf of their investors to give them access to diversified portfolios they don’t have to monitor themselves. Not only does this simplify portfolio diversification for investors, but it also ensures their portfolios are managed by experts who can make the best decisions to grow their funds.
About Flagship Investments
As a listed investment company, we give our clients access to an expertly crafted, highly diverse portfolio of various Australian companies operating across multiple different business sectors. Actively managed by EC Pohl, Flagship Investments’ portfolio is composed using a sustainable approach and the very best investment expertise.
If you’re an investor who prefers to build wealth and achieve financial success through disciplined, long-term strategies, Flagship Investments can help. Head over to our Contact Page to chat with a member of our team today and discover how we can help you achieve your goals.
A diversified portfolio typically includes a mix of asset classes such as stocks, bonds, real estate, and international investments, spread across various sectors and geographies to reduce risk.
To diversify a share portfolio, consider including stocks from multiple industries and regions, incorporate ETFs or mutual funds that cover broad market segments, and regularly reassess your asset allocation.
