So, you’ve been told to diversify your investment portfolio and you think you’ve got that accomplished. But do you really? Diversifying your investments involves more than simply owning a variety of securities. In fact, unless you’ve made a true analysis of your investment portfolio and weighed it according to your individual risk tolerance, your current portfolio could be much riskier and unbalanced than you think.
The Key to Portfolio Diversification
When assessing your portfolio for proper diversification, the first thing your financial advisor in Manchester will do, is make sure your investments are truly uncorrelated. The reason for this is pretty simple. If an unforeseen event takes place that would adversely affect one of your investments, you can quickly sink your entire portfolio if your investments are related to one another.
Here are some rules of portfolio diversification your advisor in Manchester will use:
• Since each investor has a unique financial situation, risk tolerance, retirement, and investment goal in mind, your advisor will take all personal factors into account to arrive at the proper asset allocation for you.
• Your advisor will also make sure that your portfolio assets are well balanced. Ideally, even if one investment is not currently performing well, you should have others that are outperforming. This will reduce the volatility of your portfolio as a whole. That’s what proper diversification should accomplish.
• With this in mind, your financial advisor in Manchester will also capitalize in markets that are currently outperforming to enhance your overall returns and add to your bottom line.
• By properly diversifying your investment portfolio, your advisor will also assist you in building a portfolio that performs well as a whole in bull, bear, and sideways markets. How is this accomplished? By owning assets with a negative correlation (when one asset climbs, the other decreases).
• Your advisor in Manchester will also help you to assess and reassess your portfolio so you can capitalize on the different movements that are taking place, such as selling out of your outperforming assets while buying into those that are underperforming. By doing so, you’ll be buying low and selling high, the ultimate combination to secure your future and build wealth.
• Your advisor will also test your current portfolio to see how it will perform under various market conditions. Of course, no one can fully predict what the future holds, but having an awareness of the overall health of your portfolio and preparing for future events will keep you prepared for what lies ahead.
The bottom line? Your portfolio should be assessed by your advisor often to be sure it fits with your current needs. The investment strategies and risk tolerance you had when you were in your 30’s should not be the same strategies you are using in your 50’s.
Your financial advisor in Manchester will help you to truly diversify your investment portfolio and keep your future on the right path.