Why it’s important to diversify your investments
Many of our clients ask us when is the best time to buy into the stockmarkets or sell their existing holdings. What they want to do, of course, is to try and time their purchases or sales so that they buy at the bottom and sell at the top.
However, our answer is always the same. We believe it is almost impossible to outguess the markets and that any attempt to call the top or the bottom is likely to end in failure – and loss of your money.
Instead, it is our strongly held view that it is much more important to pay attention to asset allocation. Specifically, we believe it is important to ensure that you build up a diversified portfolio of investments which properly reflects your attitude to risk and reward and embraces a number of asset classes which may include equities, bonds, cash and commercial property.
Collective funds like unit trusts enable individual investors to enjoy greater diversification because they provide a share in a broad portfolio of assets. Diversification may also require spreading investments across a range of fund managers. This way you avoid putting all your eggs in one basket, both in respect of funds and fund managers.
There is sound logic for diversification. While experience shows that over the long-term equities have generally outperformed other asset classes, such outperformance cannot be expected to take place smoothly or in every year. There will inevitably be corrections and no single asset class should realistically be expected to dominate the performance tables all of the time.
Please note that the value of your investment may fluctuate over time and even go down. This type of investment should be seen as medium to long term. Investing in commercial property can carry additional risks where the money may be unavailable when required.
For more information on developing a diversified investment portfolio to suit your attitude to risk and reward, call Chris Rowley Financial Services on 01778 347473 or send us an email.