Think of diversification as not putting all your eggs in one basket. Imagine you have different items in your backpack for different weather – an umbrella for the rain, sunnies for a hot summer day, so you're ready for whatever comes your way.
Key takeaways
Diversification can be achieved through investing in different stocks across a range of different industries.
Revisit your portfolio periodically, adjusting your investments to stay diversified and aligned to your financial objectives.
How to diversify
Instead of investing all your money into just one company or industry, you could have a mix – some shares in technology, some in healthcare and maybe a few in different countries. This way, if one sector or country is struggling, the others might still grow, which could cushion any losses. Diversification is essentially having a safety net – it doesn't guarantee profits, but it can help soften the blow of potential losses experienced in specific investments.
Other investment opportunities
Investing in a variety of different investments options such as stocks, ETFs or bonds can spread your risk. If one investment doesn't perform as well as you’d hoped, others might do better which can balance things out.
International shares and investments
Investing in international shares is another way you can diversify your portfolio. This is all about buying shares in companies based outside of Australia. Investing internationally can give you exposure to different markets, industries and currencies, which not only provides additional investing opportunities but also can reduce the risk associated with having all your investments in one market.
What is rebalancing?
Rebalancing is a strategy that involves adjusting your investment portfolio in order to maintain its intended risk and return levels. Many investors periodically review their portfolio and make necessary changes, like selling or buying assets, to keep their investment mix aligned with their goals.
For example, if one investment has grown beyond your expectations, it might become a larger part of your portfolio, possibly increasing your risk. Ultimately, rebalancing can help restore your original investment strategy, helping to keep your investments aligned with your objectives. When rebalancing, it might also be a good time to review your original goals and tweak them according to your circumstances and future plans.