Jan 21, 2018

Our Insights

One of the best ways to protect your financial assets is by bringing some balance.

What does it mean to diversify?

Diversifying means investing your money in different sectors. Different asset classes carry differing levels of risk. Some assets could cost you a lot of money if they fail, while promising you a large return if the market thrives. Others don’t fluctuate as drastically. So while the safer sectors may not be very lucrative, they do provide a buffer of sorts should hard times befall your more high-risk assets.

To diversify means not keeping all of your eggs in one basket. Rather, you maintain investments across a range of high and low risk assets.

A few examples of diverse assets include:

• Shares
• Bonds
• Cash
• Fixed interest
• Property

Why you should diversify your investments

Diversifying investments is a protection. If one market you’ve invested in starts to fail, you won’t lose everything since you’ll still have funds invested in other areas that may be doing much better.

Keeping a balanced and diverse portfolio is also a great way to maintain an even level of capital. The more diverse your portfolio, the greater the chances you’ll always have income coming in from somewhere.

How to successfully diversify 

Start by looking at different assets as a whole. You may want to invest in entirely different asset classes, but you can also diversify by investing in various sectors within an asset type.

For example, you can choose to invest in shares as well as in a managed fund. Diversify within those types by investing in different fund managers and purchasing shares in differing industries.

A couple other great diverse investments include listed investment companies (LICs) and exchange trade funds (ETFs).

It also pays to broaden your portfolio with some alternative assets such as a collection of fine wines or artwork. Such assets aren’t as closely linked to more traditional assets like bonds and shares, so they’re more likely to remain unaffected if those other sectors fail.

Invest with caution 

Keep in mind that your portfolio needs to be well-balanced in order for you to experience the benefits of diversifying. You can’t simply invest primarily in high-risk ventures with a smaller, tamer investment on the side. You won’t see a steady revenue if you do that.

Rather, look to add something new to your assets each time you broaden your investment portfolio. For example, if you’re already paying off your home, don’t plan to buy another residential property. Go for something totally different like shares, or diversify just a little bit by looking into a commercial property.

You need to be even more careful when it comes to investing with your self-managed super fund (SMSF). Remember that it’s purpose is to support you during retirement. Know your fund’s objectives and limitations well and avoid investing the majority of it into one asset, alone. It’s essential to diversify here, as well.

Of course, this is just a general overview and it’s crucial to get personalised advice about your investment plans from an experienced financial adviser.

Expert Financial Advice 

For a no obligations discussion about your needs, reach out to our team here at Calder Wealth Management. Call on 08 8373 3333 today to schedule an an appointment.

- Ben Calder, Private Client Adviser