Don’t put all your eggs in one basket, isn’t that what they say? It’s certainly something I stand by when it comes to investing. Don’t risk everything on the success of one venture, as there are no guarantees in business. It might be tempting to throw everything at one investment opportunity, hoping for a big financial payoff – especially if it’s a business investment you have a lot of confidence in – but, this can be a risk. If the investment fails, you could be left with nothing. This is why diversifying your investment portfolio is so important. In this blog, I’ve taken a look at why portfolio diversification is a vital part of success.
Take it from me, someone who has seen businesses succeed and fail, a diverse portfolio is key. For example, Inc & Co has been a recent passion project of mine, but it was by no means my only focus. I knew that if Inc & Co hadn’t been as successful as it had, I had other plates spinning, other business investments to fall back on.
Portfolio Diversification is a Key Part of Business Investment Success
To put it simply, diversifying your investment portfolio can significantly improve its success. But, what does this mean? Portfolio diversification means spreading your investments across various businesses and asset classes, and embracing a range of industries. This enables you to reduce the risk, whilst also improving the chances of long term investment success. If one asset underperforms or experiences a downturn, you have others to compensate and make up the difference. Overall, your diversified investment portfolio is a lot more stable. It’s more likely to perform well, as your good investments are balanced by the not-so-good investments.
Diversifying Your Investment Portfolio is Crucial to Success
There are a lot of reasons to build a diversified investment portfolio, one of which is risk reduction. By diversifying your investment portfolio and investing in a variety of assets, you can avoid the negative impact that a failing asset has on your entire portfolio. For example, if you have stocks in multiple industries, a downturn in one sector may be offset by growth in another.
You can also benefit by being able to participate in multiple areas of growth, which isn’t possible without diversification. Though some assets may experience periods of inactiveness, others may be experiencing significant growth. By diversifying your portfolio, you have the potential to benefit from positive returns across different markets, at the same time.
One of the key requirements of investing is dealing with volatile markets. A lot of markets change, with significant upturns and downturns, and endless uncertainties. With a diversified portfolio, you have a bit of a safety net, and no single fluctuation will impact you hugely.
Kickstarting Your Business Investment Journey
There is never going to be a perfect time to kickstart your business investment journey, so there is no need to put it off. There’s always going to be good investment. There’s always going to be investments you would have avoided with hindsight. The sooner you invest, the sooner you start to see the benefits of diversifying your investment portfolio.
To start building a diversified investment portfolio, you need to consider your risk tolerance, investment goals and timeline. Consider how much of a risk you’re willing to take. Think about how long you want to wait, before you see returns. Allocate your assets across different classes – such as equities, bonds, property, commodities and cash – depending on your individual circumstances.
It’s also a good idea to broaden your investment journey by embracing international assets. Global portfolio diversification can give you exposure to different economic conditions and reduce the impact of market downturns that are more localised. Once your business investment journey is in full swing, continue to revisit and rebalance it, always improving your investing efforts. There will be some assets that outperform others, and so your initial allocation may change slightly over time. Rebalancing ensures that your portfolio stays in line with your investment objectives, and you always have the biggest chance of growth.
Business investment success isn’t guaranteed, but that shouldn’t put you off. With a diversified investment portfolio, you have a safety net for your investment journey.