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Tips For Maintaining A Diverse Financial Portfolio
Maintaining a diverse financial portfolio is an essential aspect of successful financial planning.
On a most basic level, diversification in investment terms helps to reduce risk. In more recent times, many investors have chosen to diversify their portfolios as a defence mechanism against rising inflation.
But this is simply a timely example of how diversification can help to protect an individual’s wealth. There are many ways to diversify a portfolio to safeguard your investments and financial future, and in this article, we share our top tips on how to successfully achieve this.
Diversify across varied asset classes
When it comes to investing, there are several asset classes to keep in mind: equities, bonds, cash, property, commodities, absolute return funds, and other investments.
Each asset class performs differently in varying economic conditions. For example, when the stock market is performing well, stocks may have high returns, but during an economic recession or market downturn, stock prices may fall dramatically. In contrast, bonds tend to be less volatile, providing steady income but lower returns than stocks.
Ensuring diversification across these asset classes can help to reduce overall portfolio risk.
Invest in different sectors and global markets
Spreading investments across various industries and markets is another wise move concerning diversification. This will ensure stability in the event of one specific sector experiencing a downturn.
The same theory rings true in terms of investment in global markets. Expanding a portfolio into international territory will allow investors to benefit from growth in other economies, even if their local investments are taking a hit.
Review and rebalance a financial portfolio at regular intervals
Portfolio reviews help investors to analyse overall performance, identify areas of weakness and determine whether changes are needed to achieve investment goals. Rebalancing involves adjusting the asset allocation to maintain a suitable balance between the different asset classes.
Given the volatile nature of investments – along with an individual’s evolving life circumstances – keeping abreast of all changes in financial and personal terms is crucial to maintaining a successfully diversified portfolio that continually prioritises your financial best interests.
Work with a financial advisor to estimate personal risk tolerance
Risk tolerance refers to the amount of risk that an investor is willing to accept in pursuit of higher returns. It is important to align investments with risk tolerance to avoid emotional decision-making during market volatility.
Gaining a clear understanding of personal risk tolerance will help to provide great insight when diversifying a financial portfolio. This can be a difficult task for someone new to the process, which is why recruiting an experienced financial advisor to provide guidance and industry insights is a must.
A financial advisor will also help with tax management on all investments, as well as ensure a portfolio does not become over-diversified. Over-diversifying a portfolio refers to the practice of adding an excessive number of investments, to the point where potential benefits diminish. While diversification can reduce risk, over-diversification can lead to diluted returns and increased complexity, making it harder to manage the portfolio effectively.
Diversify your financial portfolio with the help of Symmetry Financial Management
Symmetry Financial Management is your go-to provider of financial advice. Our team of experts is on hand to help clients maintain a diverse financial portfolio that will ensure their money is strategically invested to achieve the best results for each unique set of circumstances.
Through our savings and investments service, we will help you decide where you should put your money to get the returns that match your risk profile, financial goals and timeline.
Talk to us today to find out how you can build a winning financial portfolio through smart, expert diversification. Don’t forget to visit our blog and resources for more information across all areas of financial planning.
If you’d like a free, no-obligation consultation for your mortgage, pension or financial needs, get in touch here, call us on 01 6831673 or email us directly on info@symmetryfinancial.ie.
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