A short story about investment diversification.
It’s January 2018.
A client calls me, asking how to invest in emerging market investments.
“Why do you want to invest in emerging markets?” I ask
“They were the top-performing investment last year,” he tells me.
“But past performance is no indication of future performance”. I tell him.
“Remember diversification?” I ask. “Not putting all your eggs in one basket?”.
Fast forward one year. It’s January 2019.
That same client calls me:
“I’m glad we didn’t invest in emerging markets last year,” he tells me.
“Why’s that?” I ask.
“They were the worst-performing investment last year,” he tells me.
(Source – NovelInvestor)
But don’t just take my word for it. Lars Kroijer is the author of ‘Investing Demystified’ and a former hedge fund manager. He describes investment diversification as “the only free lunch” in investing.
He goes on to say that: “getting exposure to a very broad array of industries is better than buying individual stocks or even picking individual industries or countries. We’re always hearing about investors who bought just the right thing at the right time. But they’re actually in a tiny minority. Sure, you might get lucky – but why take the risk of being unlucky?”
So there you have it. Diversification is the smart thing to do. It helps to reduce the downside without necessarily reducing the upside.
All the best,
James Mackay, Independent Financial Adviser in Bristol
P.s – if you want a little more help with navigating your investments, check out the 7 Simple Steps to Investment Success. It provides you with a proven process to help you avoid costly mistakes and tilt the odds in your favour. You can get a copy by clicking here.
Financial Advisor Bristol and Pension Advisor Clifton
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