Diversification is all about managing risk. To put it simply, diversification means spreading your investment risk across a variety of assets and asset classes. This way, if one asset or asset class performs poorly, your other investments help to offset this poor performance, protecting your capital. The more uncorrelated assets and asset classes you invest in, the less risk you face of an underperforming asset damaging your overall return. This is where the use of ETFs comes into play - they provide a means to diversify across asset classes; and also are well-diversified within asset classes.
Diversification can seem complicated to some investors – but this doesn’t have to be the case. There are currently lots of options available for investors who want to diversify but need a little bit of help in doing so. At InvestSMART we offer a range of already diversified portfolios that you can use to complement and diversify your existing investments or use as a total portfolio solution.
Building a diversified investment can sound intimidating. However, the process isn’t as complex as it seems. To help you out, InvestSMART has developed a variety of tools and resources. Our Portfolio Manager allows you to track your assets and monitor your net wealth. You can also use the InvestSMART HealthCheck tool to help understand how well diversified your portfolio is, and whether your asset allocation is appropriate in achieving your desired financial objectives.