What is a diversified investment portfolio?
A diversified investment portfolio is when your combined investments are spread across different asset classes rather than invested in one single class. For example a portfolio spread across cash, fixed interests, property, shares etc.
What’s the key benefit in diversifying your investment portfolio?
A major advantage in having a diverse portfolio is that you limit many of the risks that are inherent in investing. By spreading your investments across a range of different asset classes, you are more protected in the event of a negative return than if you were to have all your investments in a single asset class.
Each different asset class has its own set of risks and returns, but by ensuring that your portfolio is diverse you can ride the ebbs and flows of each market more confidently knowing that you have other asset classes to provide returns.
Different asset classes:
The major asset classes that appear in investment portfolios are: cash and fixed interest investments, property and shares.
Cash and fixed interest investments: These are generally regarded as the more ‘low risk’ investment avenue as the capital invested is generally quite secure in comparison to other classes of investments, however, cash and fixed interest investments to do not effectively combat the effects of inflation or interest rate changes.
Property and Australian Shares: These two asset classes carry a moderate risk in regards to investing and are best for a medium term investments of 5-10 years. The benefit of these asset classes is that they are recognised as providing capital growth in excess of inflation over the investment term.
International property is a more high risk investment, and is believed to only be beneficial if it is a long term investment of over 10 years. These investments can be volatile in the short term but are believed to deliver substantial capital gains in the long term.
Direct vs managed investments:
|Professional fund manager invests funds on your behalf||Control lies with professional, so there is a loss of personal control|
|Further access to research and professional analysis||You will incur management fees|
|Ability to diversify investments||Returns may not be as high as some direct investments|
|Likelihood of a delay in accessing funds|
For more information of diversifying your investment portfolio, please contact Solid Financial Advisors on (03) 9690 2666