A Guide to Diversify Your Investment Portfolio

The global equity market has always been characterised by volatility. In this uncertain scenario, there’s a need for investors to safeguard their portfolios from the ever-changing financial market. However, the statistics regarding Australian investors speak another truth. Almost 49 per cent of them have only a single type of investment. They thus have a poorly diversified portfolio and expose themselves to many varied risks. But today, you can avail yourself of many investment opportunities in Australia that enable you to buy preference shares in a range of options. 

Select an appropriate range of investments, and you will undoubtedly see some of them peaking and others going down. Thus, it helps you to streamline your portfolio returns and safeguard yourself from market fluctuations.

Why Do Investors in Australia Need to Diversify?

Australians are bombarded with messages which outline the importance of diversifying. However, in reality, of 11 million investment holders, most of them place it in one or two Australian bank stocks. The ASX Australian Investor Study reveals that 75 per cent of shareowners only have Australian shares. Among them, 40 per cent admit that they lack a strong portfolio. 

Global uncertainty that has been aggravated further by the pandemic contributes to investor uncertainty in Australia. Moreover, Australia’s familiarity with local firms compared to foreign companies influences the decision of a majority of investors to stay with domestic equities. Here are some easy ways for portfolio diversification. 

Across asset classes

The first method is to bring in an array of asset classes, like cash, property, fixed interest, and shares. When you invest in a range of asset classes, you will significantly modify the investing experience. 

You will find that stocks will give a higher return as compared to bonds. However, a downside to them is that they are much more prone to losses. 

Within an asset class

Another way is to diversify inside an asset class. You can try to purchase shares in organisations functioning in various domains, like mining, retail, banking, and biotechnology, within your Australian shares.

Fixed interest and cash

Low-risk investments, like fixed interest and cash, are indispensable to managing risks. Try to balance your investment portfolio with them. 

Preference shares

Preference shares are those that are prioritised over equity shares regarding the payment of dividends. They are held by preference shareholders who receive pay-outs first if the company pays its investors any dividends. You can find investment opportunities in Australia providing monthly returns over a fixed term. It’s a great way to diversify the investment strategy.

Invest in stocks in other countries

It is also a viable option. Australian investors can choose to invest in stocks in countries like Europe, Asia, or the US. Diversifying beyond Australia can provide a broader range of class-leading companies. You can find many opportunities outside Australia as well.

Mistakes to Avoid

• Investors need to realise that they are not immune to any risks. The typical Australian phrase, ‘placing your eggs in one basket,’ holds true for many Australian investors. If you are looking to safeguard your financial resources from increasing volatility, then you need to look for ways for diversifying.
• Always undertake a careful analysis of the markets at the present moment. Don’t make the mistake of following the crowd when it comes to making investment decisions. Instead, you need to research, analyse, and attain a deep understanding of markets.

Diversification makes the portfolio of every investor strong. So, irrespective of how the markets are changing, you need to begin diversifying your portfolio if you haven’t yet started. Over time, you will surely notice a significantly better return.