What Does it Mean to Diversify Your Funds?

Diversified investment, also known as portfolio investment, refers to the simultaneous investment in different asset types or different securities. Diversified investment introduces an important change to the principle of equivalence of risk and return. An important benefit of diversified investment over single securities investment is that diversified investment can reduce risk without reducing returns. This also means that by diversifying our investments we can improve the risk-benefit ratio. Securities diversification investment includes four aspects: object dispersion method; timing dispersion method; geographical dispersion method; term dispersion method. In practice, various methods can be adopted according to different situations, but the only purpose and effect is to reduce investment risks.

Diversify

Diversified investment is also known as

For most investors, diversification is familiar. We can use a popular metaphor to define: "Don't put all your eggs in one basket!" This phrase briefly and accurately captures the characteristics of diversification. The significance of diversified investment lies in reducing investment risks and ensuring the stability of investor returns. Because once the security of one kind of securities is down, the income of another kind of securities may rise, so that the returns and risks of various securities can still obtain better investment returns after offsetting each other.

Securities diversification investment includes four aspects:

First of all

We can invest in different asset types, mainly in stocks,

The main role of diversification is to reduce investment risks.

Diversified investment, also known as portfolio investment, refers to the simultaneous investment in different asset types or different securities. Diversified investment introduces an important change in the principle of equivalence of risk and return. An important benefit of diversified investment over single securities investment is that diversified investment can reduce risk without reducing returns. This also means that by diversifying our investments we can improve the risk-benefit ratio.

Example one

We can give a more idealized example. Assumes long-term investment in the air transport industry

For the diversified investment mentioned above to be more professional, for the majority of small and medium investors, it is necessary to listen to the opinions of financial management experts. Because it is not easy to achieve a proper diversification, and a proper diversification is crucial to our long-term investment income. Many studies have shown that 80-90% of the long-term investment income of an investment depends on the mix of portfolios made. From here, you can also see that it is very important to make a reasonable and suitable investment portfolio and make appropriate adjustments to the investment portfolio according to changes in yourself and the economic situation. Having too many different investment methods in the same investment portfolio will result in each investment not being able to develop efficiently, and the returns will not reach the expected level. Over-diversified investment portfolios often end up as indexed investments: highly diversified risks and returns Smooth but low. In the case of holding multiple high market value mutual funds at the same time, the various costs caused by overlapping holdings will bring additional risks and fees to the investment. Another point that deserves everyone's attention is that investment must start as early as possible and adhere to long-term investment.