Wealth Management
5 minute read

‍What is Investment Diversification, and Why Should You Care?

Written by
Jeremy Askew
Published on
June 17, 2024

Investment diversification isn't just a fancy financial term. It's a simple, but powerful, way to spread your money across different investments. Think of it like not putting all your eggs in one basket.

The Mix and Match of Investing

Diversification means spreading your money across different companies, industries, and even countries. It also means investing in different types of assets, like shares, bonds, and property.

When you diversify, you create a mixed bag of investments – your portfolio. The more varied your portfolio, the better diversified you are.

Why Bother Diversifying?

The main reason is to spread your risk. If you put all your money into one company and it goes bust, you're in trouble. But if you spread your investments, a bad performance in one area can be balanced out by better performance in another.

Diversification also helps to smooth out the ups and downs of your investments. You'll still see some fluctuations, but they're likely to be less dramatic than if you'd put all your eggs in one basket.

Another benefit is flexibility. If you need to access your money unexpectedly, having a diversified portfolio means you're less likely to be forced to sell an investment at a low point.

The Downside of Diversification

There are a couple of things to bear in mind. Diversification can be more expensive, as you might have to pay fees for each investment you make. It also means you might miss out on the huge gains you could get from a single, high-performing investment.

But remember, diversification is about balance. You might sacrifice some potential gains, but you're also protecting yourself from big losses.

How to Diversify Your Investments

Here are a few ways to create a diversified portfolio:

  • Mix up your assets: Invest in different types of investments (shares, bonds, property, etc.)
  • Spread across industries: Don't just invest in one sector – think about tech, healthcare, energy, and so on.
  • Go global: Invest in different countries to spread your risk across different economies.

Think about your risk tolerance and how long you can afford to tie up your money. If you need access to cash quickly, you'll want to keep some money in easily accessible investments.

Investing with Town Close Financial Planning

We get it – investing can be confusing, especially if you're new to it. That's where we come in.

At Town Close, our independent financial planners do the hard work for you. We stay on top of market trends, choose a diverse range of investments, and even rebalance your portfolio when it's needed.

But before we even think about investing, we get to know you. We'll understand your goals, your finances, and your attitude to risk. We'll even create a cash flow forecast to make sure you're covered for the future.

Let us help you build a diversified investment portfolio that's designed to meet your unique needs and goals. Get in touch today and let's chat about your financial future.