When we talk about investments, the conventional investment options like stocks, bonds, mutual funds, UITF and VUL comes to mind.
All these options come with their respective risks and the corresponding probability of return. All you have to do is study the trend and learn about everything that you can about the investment option that you would like to try.
In addition to that, if you have heard the saying “don’t put all your eggs in one basket” then you have to consider that now. Once you figure out which investment option you want to try, make sure that you don’t put everything there.
Putting all your investment capital on one aspect of investment channel can maximize your risk and can subject you to a catastrophic loss where you can significantly lose a small or huge part of your capital.
To minimize the risk, you can diversify your investment portfolio. Making sure your “eggs” are not in one basket.
To diversify means to invest in several varieties of assets so you can reduce your portfolio risk. Doing so will give you a buffer from risks.
Diversification in a nutshell
We all know that asset classes such as bonds, stocks, real estate, agriculture, are all different sectors. This means that if one of them goes down, then it doesn’t necessarily mean that the others go down with it. Some may go up and some may go down.
If you diversify, you are making sure that you are not caught in an asset that is going down, with all your investment capital along with it. Diversifying means that you will only lose a part of your capital when an asset class goes down, while the money that you invested on other asset classes will be buffered or may even yield a higher return.