"Don't put all your eggs in one basket"

this is one of the most common phrase anyone will hear when going into investment.

This is the central thesis on which the concept of diversification lies.

Diversification is about understanding the risks involved in every investment action. The act of spreading investment dollars across a range of assets to reduce investment risk.

It’s part of what’s called asset allocation, meaning how much of a portfolio is invested in various asset classes, or groups of similar investments.

Risk level consists of

Conservative

Balanced

Growth

Aggressive

Every level represent a different risk appetite, for the average joe in the street to seasoned investor to conglomerate, diversification will play an important role in the risks management. 

 

Spreading the risks in the asset allocation, doing funds placement, geographic diversification to dollar cost averaging.

With diversification,

some argue that this may not bring out the maximum profit potentials, however, there are no certainties in the volatile market. 

Maximum profit will exist in textbook and not in real market. 

A diversified portfolio should have a broad mix of investments and liquid cash.

Recommending building a 80/20 portfolio, allocating 80% of capital to investments and 20% to cash. 

With the cash allocation helps to play an advantage when coming to any downfall, by buying in at a lower price. This will help to boost the overall risk diversification.

The importance of a well-diversified portfolio in any market condition.

When the market is booming, it seems almost impossible to sell a stock for any amount less than the price at which you bought it. However, since we can never be sure of what the market will do at any moment, we cannot forget the importance of a well-diversified portfolio in any market condition.

Serious investment is not a game of monopoly, where you will get a second chance.

Funnel through the tools and strategies available will be a wise choice to do so. 

Consider creating your own virtual mutual fund by investing in a handful of companies you know, trust and even use in your day-to-day life. 

FOR THE INDIVIDUALS

Add to your investments on a regular basis. If you have $10,000 to invest, use dollar-cost averaging. This approach is used to help smooth out the peaks and valleys created by market volatility. The idea behind this strategy is to cut down your investment risk by investing the same amount of money over a period of time.

With dollar-cost averaging, you invest money on a regular basis into a specified portfolio of securities. Using this strategy, you’ll buy more shares when prices are low, and fewer when prices are high.

Stay current with your investments and stay abreast of any changes in overall market conditions. You’ll want to know what is happening to the companies you invest in. By doing so, you’ll also be able to tell when it’s time to cut your losses, sell and move on to your next investment. 

 

Practise Start-Pause-Stop-Switch with an objective oriented mindset. 

Get Started with any form of investment that you are familiar with, learn to Pause to rethink and strategize, Stop when it’s enough and Switch to take advantage or avoid.

individuals
corporate

FOR THE CORPORATE

In corporate portfolio models, diversification is thought of as being vertical or horizontal.

Horizontal diversification is thought of as expanding acquiring similar asset class. Vertical diversification is buying in more to the same asset class.

Non-incremental diversification is a strategy should be followed by conglomerates. Company can attain diversification from exogenous risk factors to stabilize and provide opportunity for active management of diverse resources.

A Diversified Portfolio

Layering of diversification

Layering of diversification, starting from Mindset to Areas of investment (Geographic, Industries, Funds, Companies) , to Cash Flows.

It helps the overall investments

A diversified portfolio helps the overall investments to absorb any shocks of an financial disruption, providing buoyance for the invested.

Do not limit diversification

Do not be mistaken to limit diversification to just type of investment or classes of securities; it also extends within each class of security.

A disciplined approach

The bottom line is taking a disciplined approach and using diversification, buy-and-hold and dollar-cost averaging strategies, you may find investing rewarding even in the worst of times.

Disclaimers :