The Importance Of Diversifying Your Investment Portfolio

Investing instead of simply leaving money in a standard savings account is becoming a popular choice for many people today, due in part to increased knowledge about investing and a boost to the accessibility of investment opportunities. Investing your money is a wise decision if you’re looking for something positive to do with your finances, as leaving it in your standard bank account or even just your bank’s standard savings account will actually lead to you losing value on your money due to inflation rates surpassing interest rates. Putting your money into stocks and shares, however, as well as other investment opportunities, will instead present you with the chance for your wealth to grow significantly. However, it’s important to remember that your capital is at risk when investing, and sometimes it doesn’t always go according to plan. To reduce your risk of losing more than you put in, you need to diversify your portfolio.

Why Has Public Knowledge Of Investing Increased?

Our knowledge has increased significantly due to things like crypto often being front and centre in the news, for example, leading many people to start doing their own research and for experts to also start sharing their knowledge with others too. More people are now also beginning to understand that savings accounts have incredibly poor rates. Banks essentially set these to give back as little as possible to their customers while still encouraging people to invest in their business. With this knowledge, many people come to the realisation that they might be better off trying their hand at investing their money properly rather than leaving it to diminish with a bank.

How Has Investing Become More Accessible?

The simple answer for this is technology. Advancements in the world of tech have led to many new trading platforms being created. These allow anyone to get involved with trading in a simple, almost jargon-free way. The unnecessary visage of complexity when it comes to investing was likely used by those that had already gotten involved in the world of trading and investing, and it worked as a means of keeping others away from this potentially rewarding activity, adding an air of exclusivity and elitism. But now, with the advancement of tech, investing has become something that is accessible to all at the touch of a button. You can use trading platforms to monitor your investments, open and close trades quickly, and even automate these processes too.

What Things Can People Invest In?

One of the great things about investing is how diverse it can be. There are so many things that you can invest your money in, whether that’s individual companies, products, or cryptocurrency. You could choose to start investing in the tech industry, putting money into tech startups which you believe have a chance of becoming the next big thing. Or perhaps you want to invest in certain raw materials like gold, with the aim of maintaining your money’s value much more than if you were to keep it in a savings account. You could also buy cryptocurrencies like Bitcoin and Ethereum to take advantage of the fluctuations in the volatile crypto markets. If you’re looking to buy Ethereum for the best price, for example, you can do so by monitoring online marketplaces like Paxful, which specialises in cryptocurrency trading, rather than stocks or assets. But of course, you shouldn’t limit your investment to one particular thing.

How Diverse Should A Portfolio Be?

the importance of diversifying your investment portfolio There is no correct answer here other than everyone who invests should at least diversify their portfolio to some degree. The less you diversify, the higher you put your capital at risk. If you want to ensure that your risk of substantial losses is significantly low, you’ll want to spread out your investments as much as possible. But of course, at the same time, if you do this, you’re essentially diluting your investments, reducing the impact that they can have on your funds should a particular investment skyrocket in value. For example, you could have £10k invested in a tech startup of £100 per share. That means you’d have one hundred shares in that company. If the value of those shares then increased astronomically to £1k per share, your investment would have increased to £100k. Whereas, if you spread your £10k into other investments and instead only invested £1k in that startup, you’d have ended up with ten shares which would give you a £10k return after the rise in value. However, it could also go the other way, and the shares could instead plummet in value.

How To Start Diversifying?

Using whichever trading platform you choose, you should ensure that you spread those investments out as much as possible. You could decide to invest in cryptocurrencies like Bitcoin and Ethereum and buy stocks in the pharmaceutical, biotech, and green energy industries, for example. Then at the same time, you could look at investing your money outside of these trading platforms, such as investing in real estate by buying property or even investing in real-world assets. These are known loosely as alternative investments, such as rare cars, watches, and even wine. Ultimately, it is your decision to invest your money, so remember to do your research beforehand to minimise your risk.

By: Michael Kilgour | 13/05/2022