You’ve heard the proverb: ‘Don’t put all your eggs in one basket,’ meaning don’t concentrate all your resources into one place, because if that fails there are no alternatives left. In terms of financial planning, this means spreading your money across different assets. Instead of relying on one stock or market, a diversified portfolio holds a mix – for example, stocks, bonds, property and cash. The idea is simple: when one investment dips, others might hold steady or even rise. By mixing things that tend to move differently, your portfolio is less likely to crash all at once. In turbulent markets, this approach helps protect part of your money from extensive losses.
Benefits of spreading your bets
Diversification has clear benefits. For example, well-diversified portfolios tend to be much less volatile: Their ups and downs are smaller. History shows that diversified portfolios suffer smaller drops in bad years and recover faster after a crash.
The key advantages in brief:
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Manage risk: If one investment falls sharply, others in your mix can cushion the blow.
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Smoother returns: By holding a variety of assets, your portfolio’s ups and downs even out.
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Maintain returns: Diversification can reduce risk significantly while still giving you healthy growth over time.
Rather than trying to pick a single ‘winner,’ diversification allows your winners to balance out your losers.
Finding the right mix for you
Diversification is not one-size-fits-all. Think of your investments as two broad parts: A ‘safe’ core (like government bonds or cash) and a ‘growth’ slice (stocks, real estate, commodities, etc.). The right split depends on your personal situation – especially your age, goals and comfort with ups and downs.
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Young investor (age 25): With decades before retirement, you can afford more risk. You might hold a larger share of stocks or growth assets, aiming for higher returns. This long horizon means a market drop feels less scary, because you have time to recover.
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Soon-to-retire investor (age 60): With retirement near, preserving what you have is key. You’d likely shift into safer investments like bonds, annuities or cash. A smaller stock allocation protects your nest egg from steep losses when you can’t wait years for a rebound.
These aren’t fixed rules, but they illustrate how your risk tolerance, risk capacity and time horizon guide your choices. The point is to tailor your mix so you can sleep at night, whether markets surge or plunge.
Many choices, professional guidance
Deciding how to diversify your assets raises many questions:
- How much to keep in cash?
- Should you invest abroad or stick to local markets?
- When and how often should you rebalance?
Because there are so many moving parts, it’s wise to seek professional advice. A qualified financial planner can help you weigh options and build a plan that fits your unique goals and situation.
In short, diversification is powerful but personal. By spreading your investments wisely, you can weather market storms and keep working toward your goals. Speak to a financial planner – like our team at Olea Life and Wealth – to design a diversified strategy that matches your life stage and dreams.
Jono Russell: Financial Planner – Life and Wealth
