Investment diversification

Protecting your money from adverse market conditions

Todayís markets are as uncertain as ever. But there is one certainty ñ the future is coming. It may no longer be enough to simply preserve what you have today; you also have to build what you will need for tomorrow. When deciding whether to invest, it is important that any investment vehicle matches your feelings and preferences in relation to investment risk and return.

Recent market volatility has left investors feeling uncertain and many have stepped away from investing in the stock markets. But not all stocks and shares are the same. For those seeking long-term total returns, there still are some high-quality companies ñ at attractive prices ñ offering the potential to grow wealth over time.

Long-range financial goals
Diversification is a term that can be summed up with this phrase: ëDonít put all your eggs in one basketí. Diversification is a technique that reduces risk by allocating investments among various financial instruments, industries and other categories. It aims to maximise return by investing in different areas that would each react differently to the same event. Diversification is the most important component of reaching long-range financial goals while minimising risk.

Hence your asset allocation needs to be commensurate with your attitude to risk. Another key question to ask yourself is: ëHow comfortable would I be facing a short-term loss in order to have the opportunity to make long-term gains?í If your answer is that you are not prepared to take any risk whatsoever, then investing in the stock market is not for you.

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