Why Diversification is a Winning Strategy
Investing all of your money in just one or two places might feel like a safe strategy. But by spreading your savings across many different investment types, you can reduce your exposure to risk and even increase potential returns. Find out how to diversify your portfolio.
Understand your needs – and asset types. Avoiding risky investments might help you sleep better at night and ensure easy access to your savings in the event of an emergency. But playing it too safe could cost you a significant return on your investments. Instead, learn how to strike a balance that's tailored to risk tolerance by getting to know how the three main asset classes – cash, bonds, and stocks – can work for you.
Explore different industries. Investing in a single industry, such as oil or technology, is tempting, especially when reading about today's hot sectors. But buyer beware! Over-investing in one industry is a dangerous investment strategy. Investing in a greater diversity of companies and industries can reduce your overall risk when markets fluctuate.
Think globally. No two countries' economies are the same. That's why it's important to expose your portfolio to a variety of economic conditions in different countries. Doing so can reduce the risk of being exposed to just one economic environment. For example, negative performance in one country's economy can be offset by positive performance in another.
Choose a mutual fund. Do you want to properly diversify your investments but simply don't have the time or expertise? Choose a one-stop solution by investing in a balanced mutual fund that is a financial instrument that is already diversified for you.
Meet with an advisor. Still not clear on how to diversify your portfolio? Talk to an expert. A Scotiabank representative can help you assess your risk tolerance and select a mix of investments across a variety of asset classes to maximize your portfolio's return and minimize risk.