Investing is definitely great for people who are looking for ways to increase their income and resources. That’s why I encourage everyone to start investing as early as now because time is the ultimate factor that will tell how much you are going to earn for the next 10 or 20 years. Once you’re all set up and ready to invest, remember this–do not put all your eggs in one basket. Meaning, do not put all your money in one asset class alone as this may put you in a big trouble should that particular asset go sour. Portfolio diversification is essential and to help you understand how important it is, here’s the list of the benefits when you put your eggs in different baskets.
Catch me in my live training events! (quick plug)
The heart of why I do this seminars is I want to build a generation of Filipinos with the right foundation in stock investing. I want to bring smart investing to every Filipino around the world! If you would like to know more on how you could time the market checkout the trainings below.
Stock Smarts Cebu — April 6 & 7, 2019
Investing Insights Japan – April 13, 2019
Stock Smarts Singapore — May 18 & 19, 2019
Investment Conference 2019 – May 25, 2019
Stock Smarts Manila — June 15, 16, 22, 23, & 29, 2019
Stock Smarts Iloilo – July 6 & 7, 2019
Stock Smarts Cagayan De Oro – July 20 & 21, 2019
Stock Smarts Hong Kong – August 11, 2019
Stock Smarts UAE – August 30 – September 3, 2019
Stock Smarts Qatar — October 3 – 6, 2019
Stock Smarts Taiwan – November 2, 2019
Imagine what would happen if you put all your eggs in one basket and that basket suddenly falls down. It can put you in grief if you let all your eggs crack because you did not manage to put them into separate storage. On the other hand, if you place your eggs in different containers, a drop of one or two containers will not affect other eggs.
That’s how portfolio diversification works. If you put all your money in one company and that company breaks down, you will experience a significant loss. But if you invest them into different assets, for example, 25% on the stock market, 25% on real estate, 25% on a business you operate and 25% on commodities. The fall of one stock this time would not affect your entire portfolio because you have other stocks in your stock portfolio and you have other assets in your entire investment portfolio. Portfolio diversification minimizes the risk of big losses because of poor decisions. So better maximize your investments by properly allocating them with respect to your financial goals and risk tolerances.
You have to invest in assets that are not connected to each other. This benefit is strongly connected to minimizing risk if one of your investments do not do well. Think of this–if the stock market is currently bearish and it drops significantly with no sign of reversal but on the other hand your condominiums continue to appreciate in price and give you rental income that can hedge your loses.
Average investors invest in a single financial asset, Financial freedom works when you try to venture out and split your money into the following classes:
1. Businesses you operate
2. Paper assets (like stocks, bonds, mutual funds, UITFs, REITs, ETFs,)
3. Commodities (Gold and silver)
4. Property (Land for appreciation and leasable areas for cashlow)
This is legit diversification when you hedge and put your money into different asset classes. Buying an equity fund, balanced fund and bond fund is not diversification because they are all under paper assets.
Most people think that investing can give them a good return but not everyone understands that there will be ups and downs. Most people quit when markets drop or when their investments take a loss. So the real question for you will be, will you continue to invest even if you make mistakes and experience a significant amount of loss? The sooner you invest and diversify, the more you get to experience losses from certain investments and the greater your investment acumen will become. Successful investing requires patience and experience.
Portfolio diversification will broaden your understanding as an investor. It will allow you to see which asset class you are good at and you can double down on and it will allow you to see which investment you are not so good at you can put a small percentage of your money into.