A guide to diversifying your investment portfolio
When you invest your money it is important to do so with as little risk as you can manage. One way to minimise your risk when investing is by diversifying your portfolio. Here are Oracle’s top five tips on diversifying your investment portfolio.
Invest in multiple companies
One of the basics of diversifying your investment portfolio is to invest in more than one company, because even if an investment in one company goes badly your investments in other companies can still do well and keep your portfolio performing strongly.
Invest in multiple sectors
When diversifying your investment portfolio you should invest in multiple sectors. An investment you make in a certain industry may go very well for you and make you want to invest in more companies in the same sector, but if that sector crashes all of your investments will go bad.
You should also try to invest in industries which won’t affect each other if one of them collapses.
Invest in multiple asset types
Just like how different companies and different sectors can go up or down independently, the different types of assets, such as shares or property, can change without affecting each other. This is why when you are attempting to diversify your investment portfolio you should consider investing in multiple asset types to spread your risk – if investments in one asset type goes badly your investments in other assets can keep your portfolio strong.
Invest in multiple geographical areas and countries
Your investment portfolio can be affected both positively and negatively by changes in a country’s economy, so it is a good idea when diversifying your portfolio to invest in assets in multiple countries, especially economies that do not have a huge impact on one another when they do badly. You should also consider that some countries, such as developing countries, have less stable economies than others.
Don’t diversify your investment portfolio too much
While diversifying your portfolio by investing in multiple assets is a good way to spread your risks, you also risk spreading your investments too thinly if you invest in too many assets – your money will not grow as quickly as it could because you are investing so little money in each asset.