As you begin to pursue your dream of investing, you will realise that many different types of investments are out there. In the beginning, it can be pretty daunting trying to find the right assets for you. There are many different strategies that you can adopt, such as investing in blue-chip companies or focusing on small yet promising businesses.

In the realm of investing, a diversified portfolio is crucial. After all, you never know if an investment will take off or flop. If it’s the latter, you’ll be grateful you have other assets because you won’t incur significantly huge losses.

In this article, we’ll detail why an investor needs to have a diversified portfolio of investments. Read on below to learn more.

How Diversification Works

Diversification refers to the process of buying different types of investments to reduce the volatility of your portfolio. Having your money spread across various asset types – like shares, bonds, and property – means you are less likely to lose everything if one of them performs poorly. It can also allow you to capture gains that may not be available to you if you’re only invested in one market.

What Makes a Diverse Investment Portfolio

To diversify your investment portfolio, you should invest across various asset classes. These include:

Defensive Assets

Defensive assets are investments that have a lower risk and reward. These include investments, such as cash or fixed income. Defensive assets are essential in maintaining the stability of your portfolio because they are less likely to decrease in value, which moderates any decline in the value of the high-risk assets in your portfolio.

Growth Assets

As the name suggests, growth assets are high-risk, high-gain investments that can generate long-term returns. The most common examples of these are Australian shares, International shares and property securities.

The Benefits of a Diversified Portfolio

Aside from minimising losses, a diversified portfolio can offer other benefits such as:

Generates Steady Revenue

There’s a reason why an investment is called a risk: they don’t always work the way you expect them to, which results in significant losses, especially if you only invested in one thing. Diversifying your portfolio makes it more robust, with each investment serving to lower the overall risk. If one investment performs poorly, the other investments will help maintain your overall return.

Preserves Capital

Older investors will need to have a source of income to maintain their quality of life after they retire, and their focus is more on preserving their capital than generating profit. A diversified investment portfolio creates a safety net that would allow for a steady cash flow for many years to come.

Diversifying Your Investment Portfolio Is A Must!

Diversifying an investment portfolio may be complicated, but it’s highly beneficial, especially if you’re thinking in the long term. To achieve this goal, you will need an understanding of several factors, such as asset classes, financial sectors, and various markets.

Coastal Advice Group offers services for investment financial planning. We help our clients make logical decisions about their investments, and our knowledgeable financial advisers will guide you through the process. We have offices located in Newcastle, the Central Coast, Sydney, Port Macquarie, and Byron Bay. Call us or book online to secure your complimentary first appointment with us today and get started.

DISCLAIMER: The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice. Newcastle Financial Planning Group, Central Coast Financial Planning Group, Sydney Wealth Advisers, Coastal Advice Port Macquarie and Coastal Advice Ballina Byron are subsidiaries of Coastal Advice Group Pty Ltd which is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.