Wall Street – Personal Finance

5 Ways to Diversify your investments

To have a diverse portfolio means to have your money in several places so that if one company or industry is in trouble then income from your other investments should at least minimise the shock.

There are 5 ways to diversify your portfolio.

Number 1: Invest in several industries

Investing in different kinds of industries protects you from a downturn in one. With the online share market platforms I am with I have investments in a building company, an energy company, a farming retailer, phone company, and a New Zealand milk supplier. This diversification technique minimizes risks and gives me plenty of interest too.

Number 2: Invest in several funds

If you invest in managed funds and that includes everyone who is in Kiwisaver then you will be in various types of funds; growth, balanced, or conservative. The best strategy is to invest in the fund which is right for you and that depends on how soon you need the money. Long term, medium term, and short term money should be in growth, balanced, and conservative funds respectively but it all depends on your risk profile.

Number 3: Invest in different platforms

Most of us have heard of the online investing platforms such as Sharesies, Hatch, Investnow, Kernel Wealth, and Robinhood. Investing in several different platforms will help cushion you against the shock of having one of them fail, and certainly, there is no guarantee that this will not happen. I advise not investing all of your life savings into one online platform.

Number 4: Invest in different asset classes

Investing in different types of asset classes will enable you to withstand a downturn in one class of asset. Investing in fixed term interest, the share market, gold, and property are all different types of assets. It all depends on what the right kind of assets are right for your kind of personal circumstances.

Number 5:Invest in different companies

This is very important. It is unlikely that all of the companies will fail even though the industry is going through a bad patch. This rule is just as applicable to investing in finance companies for a fixed term return as it is for shares.

Benefits of Diversification

The number one benefit of diversification is it reduces your portfolio risk. If you placed all of your eggs in the one basket then you could lose it all if that one company went under and it did happen to some investors during the 2008 Global Financial Crisis (GFC) and 1987 Sharemarket crash (Black Monday).

It can be enjoyable for investors to own a little bit of a number of countries. Micro investment platforms such as Sharesies, Hatch, and Robinhood make this affordable for Mum and Dad investors.

Downsides of Diversification

Diversification can be time consuming but then everything worth doing is worth doing well. Investing in managed funds or mutual funds as they are called in the US is an option for busy people. More transaction fees and commissions is another downside to diversification and that could reduce your short term gain.

About this article: This article is of the opinion of the writer and may not be applicable to your personal circumstances, therefore discretion is advised.

Sharesies is an accessible and straightforward way to invest in the stock market. You can get started on your investment journey and start building your wealth. However, before making any investment decisions, it is essential to do your research and seek professional advice if necessary.

Join Sharesies here

Disclaimer: I may receive a small commission if you sign up with Sharesies.

INTRODUCTION

Investors must realise that investing in the markets has its ups and downs (literally) that it is important to keep it all into the right perspective if investments do not go your way. There is a method of playing the markets in a way that you can take advantage of the market drops.

The Art of Averaging

Averaging is a term one may come across in the markets now and and again; what this refers to is the average price paid for a particular share if you had bought shares in that particular company.

To calculate the average price paid for a particular share you add up the total amount you have paid for the shares and divide that by the number of shares you have bought in that company.

The answer is the average amount that you have paid per share.

Try this mathematical question:

There are five numbers 10, 20, 30, 40, 50

What is the average number?

The calculation:

Add up the five numbers: 10 + 20 + 30 + 40 + 50 = 150

Divide the total of the five numbers (150) by 5

150 divided by 5 = 30 (answer)

You can do this easily with a calculator.

There are so many share trading platforms available these days that investing directly into the sharemarket has never been easier for the ordinary man and women.

So how does averaging work?

If you purchase stock at regular intervals you will pay different prices for each stock because share prices go up and down. Imagine if you bought something at the supermarket last week at the full price then bought the same item this week on special. The average price you paid for the item will be somewhere between the higher price and the lower price.

The sharemarket works like that. By purchasing a particular stock at regular intervals you will manage to pick up some shares in it when the price is lower. This is the advantage of saving regularly.

In fact I think there is a case for purchasing more shares when the price is low. The average price paid per share is determined by calculations as explained earlier.

The averaging strategy can also be used in cryptocurrency investing.

Bitcoin is more volatile than the sharemarket so an astute investor who has an eye for a bargain can invest when the price has dropped.

There are so many share trading platforms available that playing the markets are accessible to everyone. I have joined two of them in New Zealand. Most countries have share trading platforms available. Signing up for them is easy; you require some form of identification. Just follow the directions and you are all set up.

TO SUMMARISE

Playing the markets requires a positive mindset and a cool head. If you have these you can profit from falling markets. Averaging is a method that takes advantage of falling markets.