Holistic Approach

Diversification helps to manage risk in a portfolio. But investors should also recognise the fact that this means that not all parts of their portfolio will perform equally well at all times. Overall, this should not matter to the investor.

In fact, if all parts of a portfolio could perform equally well, it would also mean that they could perform equally badly. And while a one-year return of 24% on equities sounds wonderful, remember that the return could also potentially be -24%.

Protect against poor performance

Diversifying across asset classes should help to ensure that you are protected from poor performance, enabling you to achieve your investment expectations in the long run.

How your investments are distributed between cash, bonds, equity and property should be determined by your risk profile, investment horizon and goals.

It is highly unlikely that any one asset class will be able to provide for your investment needs in the long run. For example, cash is unlikely to generate the kind of inflation-beating returns needed to ensure capital growth.

Say "no" to a one-dimensional portfolio!

Investing in a single asset class, market sector or share will yield a one-dimensional portfolio. It is only diversification, which adds depth to your portfolio.

Decisions driven by short-term volatility are likely to generate much activity, but few will yield lasting investment successes. Viewing an investment in terms of its contribution to your overall portfolio in the long term provides the sobriety necessary to make sound investment decisions.

Contact a professional financial adviser to help you structure and maintain a portfolio tailored to meet your needs.