It simply doesn’t make sense to put all your eggs in one basket if you want to grow your assets strategically over the long term. That is why discipline and a balanced mix of the selected asset classes are among the most important criteria for protecting or increasing assets. A client-oriented mix of asset classes not only protects the overall investment portfolio but also reduces the overall risk.

 

What is Diversification?

 

Diversification is a risk management strategy that mixes a variety of assets in a portfolio. A mix of different asset types and investment vehicles is the solution here to limit exposure to any one asset or risk. The basic idea behind this technique is that a portfolio constructed of different types of assets will, on average, generate higher long-term returns and reduce the risk of any single share or security.

 

The basics of Diversification

 

Diversification aims to smooth out unsystematic risk events in a portfolio so that the positive performance of some assets neutralizes the negative performance of others. The benefits of diversification are realized only when the securities in the portfolio are not correlated, ie, they respond differently and often in opposite ways to market influences.