We’ve all heard this expression which simply means that you should not put all your efforts and resources in one area. This is especially true when it comes to investments, as at its worst, you could lose everything.
So diversity is always important when it comes to any investment and superannuation portfolio, as no single investment will ever be perfect and no one should ever put their life savings in just one place. Unfortunately, there are always the once-in-a-lifetime opportunities or get-rich-quick schemes, which usually end up on A Current Affair so it’s always worthwhile getting professional advice.
So to me diversity means spreading your investments overs a mixture of asset classes such as property, shares and conservative investments like cash, bonds and term deposits. And even further diversifying within those, such as shares across markets (Australian and international), as well as a range of industries such as Banks, telcos, medical, mining etc.
You also want to look for good quality investments. For shares, for example, this means blue chip companies: businesses that have stood the test of time and that will largely ride out the ups and downs of the market. For direct property investment, this means buying a well-built property in a good location that will be attractive to prospective tenants and provide strong rental income.
Another thing to consider when buying shares, is to look for diversity of Growth and Income type investments. For example some blue chip shares will provide excellent capital growth, while others will provide excellent dividends now as an income stream especially if retired. As depending on your situation, you want investments that will work best for you. So when looking at investments for retirement, your ultimate aim is to have enough income generated by your investments and your superannuation, to replace your previous salary.
Lastly when it comes to investing one of the main reasons we want to diversify is that you can never plan what the markets will do, such as in property or shares. For example if there is a share market drop and tech stocks are doing badly, maybe another industry such as mining will be doing well and so having a diverse portfolio can help balance out the good and the bad times. This also applies to different asset classes, when the share market in general is not doing well (around one in seven or ten years on average), your property could be doing well, or visa versa when property is down, you have your shares doing well.
Having your money work hard for you in the background is important, and diversifying is a main component of any well devised investment strategy. So whether you do this yourself or speak to a professional, its worth having a check how your investments are organised.
Article by Marc Bineham – Money coach, speaker and award-winning author of The Money Sandwich