Why Is Investment Diversification Important?

If you’re just getting started with investing, it’s likely you’ll have heard about investment diversification (which is also referred to as portfolio diversification).

This is a widely used strategy that can assist with balancing the risk of your investment portfolio. When experiencing changes within investment markets, investment diversification can help to provide a safety net to ensure that the value of a portfolio remains steady.

What is investment diversification?

Investment diversification is a risk management strategy, where investors choose a variety of asset classes to include in their investment portfolio. This aims to reduce the risk of the overall portfolio.

How does portfolio diversification work?

By choosing to invest in a broader variety of assets, you can reduce the volatility of your portfolio. If the value of one asset class goes down, this may not be the case for an investment of a different asset class.

Diversification allows you to spread the risk, meaning that a decrease in the value of an investment in one area should not affect the entire portfolio. As different assets will rise and fall in value at different times, the performance of your portfolio is more likely to remain smooth.

What are the benefits of portfolio diversification?

By effectively diversifying your investment portfolio, you can reduce the impact of market volatility, giving you greater peace of mind that your investments are less likely to experience dramatic changes.

This is ideal for long-term investors who are looking to achieve financial goals far off into the future.

What is the best way to diversify your investment portfolio?

If you are looking for assistance with investment diversification, it is essential to speak to an experienced financial adviser who can point you in the right direction.

At KLO Financial Services, we specialise in building risk appropriate investment portfolios aided by investment diversification. By looking at your financial objectives and personal attitude to risk, we determine which portfolio is most appropriate for you.

A fund is only considered for our portfolios if it has satisfied our rigorous selection criteria. Our investment committee examines our portfolios every quarter, with input from our dedicated ‘in-house’ investment analyst.

To get in touch with a local financial adviser, please call 01926 492406 or email a member of the team at enquiries@klofinancialservices.com.