Investment Portfolio Diversification is a concept understood by humans for a long time and this is probably true in all aspects of life. A farmer hedges his bets by going for multi-cropping and this helps him reduce the risks of depending on a single crop. Nowhere is the concept more relevant than in asset allocation, since this is closely related to a person’s long term financial goals.
Consider the case of an investor, who invested only into photographic film company Kodak. The person would have lost all savings as photography transitioned into Digital mode and Smartphones.
Disruption is the rule of life as Encyclopedia’s are replaced by Google, Travel Agents by online sites, Hotels by Airbnb, Taxi’s by Uber, Cable Television by Netflix etc. Forecasting which sector will perform well or fail is an extremely tough task in the 21st century and under this scenario, diversification as a strategy is of utmost importance.
Primary benefits of this strategy are minimizing risk of loss, preservation of capital and generation of returns. Diversification is designed to help reduce the volatility of your portfolio over time.
Assets can be classified into different categories like Equities, Commodities, Bonds & FX and a diversified portfolio means having assets spread across these categories. Certain asset classes perform well under certain conditions and diversification ensures that the investor doesn’t miss out on these opportunities.
A peek into the current market scenario will help us understand this concept better. Commodity prices relative to equities are at their cheapest level in fifty years and even a return to mean will give investor great returns.
An investor focused only on equities will not be able to capture the returns in commodity space. At the same time global equities are at their highest level in multiple years and any sign of recession in the coming two-three years can result in a big fall.
Geo-political events like conflict in North Korea or Iran can also increase volatility in the markets. Investors flock to bonds or a currency like Japanese Yen in uncertainty or during market fall as they are considered to be safe haven assets. So bonds are a must have in any portfolio.
All these instances amply make it clear that a well-diversified portfolio is a must for any investor. It is important to remember that diversification does not guarantee against loss, but helps in minimizing risk and reach long term financial goals.
Century Financials help each and every investor to diversify their portfolios and train them with risk management tools to the highest level. We believe that investor training and education is the future of the country’s economic development and Century Financial has been actively taking all possible steps to achieve a more enlightened and educated investor base.
Founded in 1989, Century Financial has continued to lead the way by offering an extensive spectrum of investment products in the global financial markets for over last 29 years.
Century Financials bespoke solutions and flexible investment plans are backed by a host of services, which include, price alerts and market updates, training in trading and online platform, a personal trade advisor, a dedicated 24-hour customer service desk and access to customized research to empower and enable investors to make the most informed investment decisions.
Century offers one of the most technically advanced, highly intuitive and user-friendly online trading platform, which features award-winning functions geared towards enriching investors’ trading experience. Century Financial is licensed by the Central Bank of UAE and regulated by the Securities and Commodities Authority.