Once you’ve finally decided to manage your finances and invest, the next step that you have to take is to create a more diversified portfolio. Regardless of how new you are to the world of investing, this move will determine whether or not you’ll survive your first year. Why?
There are several reasons why many financial experts—including offshore portfolio management firms like LOM Financial—will suggest relying on different asset classes and investing in securities of a variety of issuers. One of them is to make sure that the fall of a single asset class will not totally affect your entire investment performance.
It is important to understand that even the most competitive industries fail, and focusing your resources on a single asset can result in an equal failure. This is because, as societies grow and turn to newer and more advanced resources, disruptions—especially through technology—create an environment where even the most established corporations can be run over by emerging startups.
The only way to fully protect your assets without worrying about such terrifying unpredictability is portfolio diversification. Asset allocation, for instance, means combining several investment classes under one financial roof: bonds, cash, stocks, commodities, and even precious metals like gold and silver.
Asset allocation is a strategic type of diversification that provides a fail-proof environment even for neophyte investors. For instance, the fall of stocks directly triggers bond prices to rise. In other words, you’ll be bulletproof.
Ultimately, the reason for diversification is to lower one’s overall risk especially during political unrest and its resulting economic woes. Spreading your assets means building several forts that can protect your financial territory. Even if one falls to the ground, you’ll still have other “defenders” to protect your wealth.
Most importantly, diversifying one’s investment portfolio is not just a passive defense against risks—it’s also a powerful method to find more investment opportunities and help them grow.