{"id":125,"date":"2013-11-20T15:33:58","date_gmt":"2013-11-20T15:33:58","guid":{"rendered":"http:\/\/95.131.64.55\/~adviser\/?p=125"},"modified":"2013-11-20T15:33:58","modified_gmt":"2013-11-20T15:33:58","slug":"spreading-risk-in-your-portfolio","status":"publish","type":"post","link":"https:\/\/www.vizionwealth.co.uk\/news\/spreading-risk-in-your-portfolio\/","title":{"rendered":"Spreading risk in your portfolio"},"content":{"rendered":"
\n

One of the principal tenets of spreading risk in your portfolio is to diversify your investments whatever the time of year. Diversification is the process of investing in areas that have little or no relation to each other. This is called a \u2018low correlation\u2019.<\/p>\n

Diversification helps lessen what\u2019s known as \u2018unsystematic risk\u2019, such as reductions in the value of certain investment sectors, regions or asset types in general. But there are some events and risks that diversification cannot help with \u2013 these are referred to as \u2018systemic risks\u2019. These include interest rates, inflation, wars and recession. This is important to remember when building your portfolio.<\/p>\n

The main ways you can diversify your portfolio<\/strong><\/p>\n

Assets<\/strong>
\nHaving a mix of different asset types will spread risk because their movements are either unrelated or inversely related to each other. It\u2019s the old adage of not putting all your eggs in one basket.<\/p>\n

Probably the best example of this is shares, or equities, and bonds. Equities are riskier than bonds and can provide growth in your portfolio, but, traditionally, when the value of shares begins to fall, bonds begin to rise, and vice versa.<\/p>\n

Therefore, if you mix your portfolio between equities and bonds, you\u2019re spreading the risk because when one drops the other should rise to cushion your losses. Other asset types, such as property and commodities, move independently of each other and investment in these areas can spread risk further.<\/p>\n

It takes patience and discipline to implement an effective long-term investment strategy. In identifying and evaluating opportunities, we seek to understand how financial markets behave by observing asset valuations, price momentum, investor sentiment and economic climate as indicators of future investment performance.<\/p>\n

Sectors<\/strong>
\nOnce you\u2019ve decided on the assets you want to hold in your portfolio, you can diversify further by investing in different sectors, preferably those that aren\u2019t related to each other. The\u00a0investment world changes constantly so when looking at investing in equity markets, it is prudent to invest in different sectors.<\/p>\n

For example, some sectors may typically be less volatile, which may appeal if you are focused on predictability and capital preservation. Meanwhile, other sectors that have more growth prospects and higher volatility may appeal if you have a higher risk tolerance. Many fund managers also focus on\u00a0sector-specific investments. In some cases, fund managers may only focus on investing in one sector, such as\u00a0the technology sector\u00a0or the\u00a0healthcare sector.<\/p>\n

Additionally, some fund managers may invest in a range of sectors and companies, but veer away from certain sectors if they don\u2019t like the current prospects for that sector. For example, if the healthcare sector takes a downturn, this will not necessarily have an impact on the precious metals sector. This helps to make sure your portfolio is protected from falls in certain industries.<\/p>\n

Geography<\/strong>
\nInvesting in different regions and countries can reduce the impact of stock market movements. This means you\u2019re not just affected by the economic conditions of one country and one government\u2019s fiscal policies.<\/p>\n

Many markets are not correlated with each other \u2013 if the Asian Pacific stock markets perform poorly, it doesn\u2019t necessarily mean that the UK\u2019s market will be negatively affected. By investing in different regions and areas, you\u2019re spreading the risk that comes from the markets.<\/p>\n

Developed markets such as the UK and US are not as volatile as some of those in the Far East, Middle East or Africa. Investing abroad can help you diversify, but you need to be comfortable with the levels of risk that come with them.<\/p>\n

Company<\/strong>
\nIt\u2019s important not to invest in just one company. Spread your investments across a range of different companies.<\/p>\n

The same can be said for bonds and property. One of the best ways to do this is via a collective investment scheme. This type of scheme invests in a portfolio of different shares, bonds, properties or currencies to spread risk around.<\/p>\n

Beware of over-diversification<\/strong>
\nHolding too many assets might be more detrimental to your portfolio than good. If you over-diversify, you may be holding back your capacity for growth, as you\u2019ll have such small proportions of your money in different investments that you won\u2019t see much in the way of positive results.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

One of the principal tenets of spreading risk in your portfolio is to diversify your investments whatever the time of year. Diversification is the process of investing in areas that have little or no relation to each other. This is called a \u2018low correlation\u2019.<\/p>\n","protected":false},"author":1,"featured_media":134,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2,3],"tags":[86,151,179,190],"_links":{"self":[{"href":"https:\/\/www.vizionwealth.co.uk\/news\/wp-json\/wp\/v2\/posts\/125"}],"collection":[{"href":"https:\/\/www.vizionwealth.co.uk\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vizionwealth.co.uk\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vizionwealth.co.uk\/news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vizionwealth.co.uk\/news\/wp-json\/wp\/v2\/comments?post=125"}],"version-history":[{"count":0,"href":"https:\/\/www.vizionwealth.co.uk\/news\/wp-json\/wp\/v2\/posts\/125\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vizionwealth.co.uk\/news\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/www.vizionwealth.co.uk\/news\/wp-json\/wp\/v2\/media?parent=125"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vizionwealth.co.uk\/news\/wp-json\/wp\/v2\/categories?post=125"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vizionwealth.co.uk\/news\/wp-json\/wp\/v2\/tags?post=125"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}