LESSON 2: Diversification reduces risk
However, you can reduce the impact of market movements by diversifying your portfolio. Adiversified portfolio is spread across a number of diffreent asset type. Diversifying prevents the value of your portfolio from being dependent on the performmance of a single asset type. A fall in the value of one investment may be offset by gains in the value of another.
Ways to diversify
Managed funds provide an easy route to diversification. Through a single managed fund it's possible to diversify across asset class, company, industry, sector, country and even fund manager.
Diversification means you don't need to pick the performers each year
In 1999, at the peak of technology share boom, returns varied widely. Australian shares generated a return of over 15% -- particularly impressive when you consider that the gains came at end of a nine- year run which saw market surge 143%. In the stampede to invest in shares, the usual safe havens were overlooked. Bonds and property trusts delivered returns of only 3% each.
But the following year saw the beginning of tech crash. Investor sentiment had changed. Returns for Australian shares were down at the end of 1999 as investors bailed out of the property trusts 16% as investors sought a safe haven for thier investments.
Diversification reduces risk. Because it's impossible to predict market movement, one way to manage market risk is to maintain a diversified portfolio. Spreading your investment across a range of carefully diversified assets, will mininise the risk and smooth your returns. Your financial planner can help you learn about fund that will help to diversify your portfolio.
Labels: diversifying, funds, managed, markets, movement, predict, reduce
posted by maik at
7:31 PM
1 Comments:
Tell me the good trust fund in Malaysia?
Post a Comment
Subscribe to Post Comments [Atom]
<< Home