Diversification can be neatly summed up as, “Don’t put all your eggs in one basket.”
Diversification is one of the simplest things investors can do to reduce our risk without affecting our potential returns. The concept is fairly straightforward, instead of being exposed to one portfolio, we can choose to gain exposure to multiple portfolios.
If we put all our investment in 1 portfolio, and that portfolio falls into financial difficulties, our entire investment fund will be at risk. If we invest in 20 different investment portfolio, and 1 of the portfolio falls into financial difficulties, only 5% of our investment portfolio will be at risk.
How should you diversify your portfolio?
1) Forex investment – forex is one of the most volatile market. You can earn up to more that 10% a month if you are good at your trading skill. But it is also the most high risk investment.
2) Reits - One of my favourite investment as you do not need to spend a lot of time watching this market. They basically give you interest about 5% or more yearly.
3) Stocks Market – for me I only invest company that have good fundamentals and give out good dividends. 3% and above annually is good for me
4) Properties – if you have a lot of spare cash can also look into properties. Collecting rents is one of a passive income investment. It gives you about 6% annually
5) Crypto – lastly is crypto, many people said that crypto is a just a bubble, but they do not understand how powerful this technology will be in future. Investing in crypto is kinda like investing in stock. You actually need to understand what is the fundamental on the crypto company you are buying. You need to do some homework on it. I will share more on this in future.
So basically once you diversify your investment portfolio, you are actually lowing down your own investment risk.