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Diversification - Big Sky Financial Solutions

Diversification



Spreading your risks by investing in different types of assets is called diversification. It ensures that you don’t put “all your eggs in one basket”. Diversified portfolios invest across all investment types- shares, property, fixed interest and cash. By diversifying you can receive a more consistent return each year and reduce your investment risk substantially.

It ensures that all your money is not tied up in one asset class should that asset decrease in value. It also allows you to gain access to a greater range of investment opportunities in the future.

We would all like to pick the asset classes that will have the best performance each year, but markets are by nature unpredictable, and each year the best performing asset class may change. Quite often, great years are followed by not so great years. Many terrible years have been followed by good ones. Finding the right mix of each asset type allows you to make the most of the “ups” while limiting the “downs”.

No one can predict the market movement and therefore be confident of positive returns at all times. People who do try to time the market by making investment decisions on a day to day tactical basis are adopting a very high-risk approach. Research has shown that tactical moves have an adverse effect on long term returns.

So, what’s the best investment strategy?



So, what’s the best investment strategy?

With performances of asset classes changing each year, there is one guaranteed way to be in the top performing asset class each year- be in every asset class, every year.

Your Big Sky Financial Solutions Financial Planner will help you determine the best mix of asset classes in your investment portfolio. The recommended portfolio is based on your risk profile, time frame and objectives.