As an investor, as you increase the number of investments in your portfolio it’s important you add some diversity. At least, if you want to reduce your overall risk it’s important you do so.
Investing diversification is a technique most investors consider closely at some point. While it’s not a guarantee against loss, it’s one of the most effective components in helping grow a healthy investment portfolio while minimising risk.
In this article, we’re looking at why investment diversity is so important, as well as a couple of investment opportunities you may not have considered:
Why investment portfolio diversity is so important
In short; investing is about managing risk and reward. As an investor, you’re looking to allocate money to a company with the expectation of seeing a profit.
If you have only one investment in a company, whether or not you see a profit is dependent on the success of that one company. Likewise, if you’re investing in one type of stock, a drop in share price can hit the whole of your portfolio at once.
The more diverse and varied your investments are, the lower the risk of taking a hit across the board. In fact, it’s almost impossible to see losses across various investments that are not connected in any way at the same time.
Ideally, over time you will invest in different asset classes, industries, and locations. This will give you the most protection against world events, individual company performance, and changes in any given industry or market having a huge impact on the value of your investments.
Types of investment opportunities you may not have considered
On the topic of diversity, here are a couple of investment opportunities not often considered by investors. Both of which offer the potential for good returns while helping you add some diversity to your portfolio:
Startups have always presented unique and interesting opportunities for investors. Indian startups, in particular, have seen a surge in success in recent years and this is an interesting market for investing.
Some internationally recognised companies and brands were once a startup coming out of India. Demonstrating that while startups are typically seen as being a higher-risk investment, they also have the potential to return higher returns.
By purchasing equity in a startup when they’re in the early stages of their business, you’re going to get a great price. They will use the funds you invest to help accelerate their growth, and if successful you’ll see a positive return on your investment.
Emerging markets investment opportunities are also higher risk, but present some of the most profitable and quickest returns.
An emerging market is essentially an economy that is not fully developed. This means that the market is likely to experience rapid growth at some point.
It’s not always easy to spot an emerging market, neither is it always easy to invest in it. They are typically countries experiencing a low level of social or political unrest.
The main metric that helps identify an emerging market is a country’s GDP. An emerging market will be experiencing higher GDP growth than developed markets.
Both of these investment opportunities present unique and interesting ways to add some diversity to traditional investing.
However, they’re not without their risks. It’s always best to work with an investment company that has experience in these markets when investing in them for the first time. The expertise and experience an investing company will offer can prove invaluable.