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A Guide To Diversifying Your Investment Portfolio

Building a sound investment portfolio starts with diversification. It is integral to managing risk and lowering your susceptibility to the ups and downs of the market, which is why wealth managers recommend that you keep various asset classes in mind when you start investing. If you are a beginner and are confused about how to go on about it and what should you aim for, do start by asking yourself the following questions:

What are my investment goals?

This is something that many first-time investors miss out on. As discussed at various insurance and finance conferences in Vegas, one must not begin investing randomly. Instead, your investment strategies should be formulated keeping in mind your long- and short-term financial and life goals. Are you trying to make more money to purchase a house? Do you want to plan a trip in the next 2-3 years? Are you saving for your retirement? When you keep your needs and wants in mind while drawing up a diversification plan, you get a clearer idea of your risk appetite and your investment horizon.

How much risk can I take?

As mentioned earlier, one of the primary reasons behind portfolio diversification is to bring down unsystematic risk. While you can’t completely insulate yourself, calculating your risk tolerance is important to ensuring that your money is protected.

A few lucrative investments bring higher returns, so one may be tempted to acquire them. However, they also have higher risk potential. On the other hand, while many may believe that the safe way to play would be to acquire low-risk assets, you must remember that they have lower return potential.

Therefore, an investor should build a portfolio that contains assets with varying levels of risk. At the same time, one must also revisit one’s risk appetite with a change of income, age, and of course, financial goals.

What are the asset classes to be considered?

When one thinks about building an investment portfolio, one usually starts with stocks and bonds. However, if you want to really make your money work for you, look beyond these conventional options and across asset classes to keep yourself protected and to lower the volatility of your portfolio. Options are money market instruments, which include commodities (gold, platinum, etc.) and property acquisition.

Having such a diversified portfolio ensures that all of your assets aren’t dependent on the health of a particular market. Let’s give you an example. The market risks of a luxury car rental company and a power company might not be the same. However, they are hugely dependent on oil prices. If there is a sudden increase in oil prices overnight, both of these companies will be affected. Therefore, one must walk the extra mile to invest in asset classes that are not subject to the same risks and conditions.

Portfolio diversification can be tricky and complicated, especially if you’re new to the arena. By attending upcoming finance events in Dubai and Las Vegas that deal with this subject in detail, you can learn to invest more effectively and wisely. One such conference is the Money 2.0 Conference which will unite investors, venture capitalists, wealth managers, and financial analysts from all across the globe!

10/19/2021 - 06:33
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Author Name
Yash Dogra
Author Bio

Yash Dogra is deeply interested in learning more about the world of finance and is a cryptocurrency enthusiast. He is a member of the organizing committee of the Money 2.0 Conference which will explore insurance and finance trends, acquaint attendees with new financial management tools, and highlight tactics to stay safe from fake/fraud investment schemes as well as spam and stock market scams.