The last financial crisis showed that most investors need to diversify their investment portfolios. Diversification reduces your risk through investing in a variety of assets ranging among equities, commodities, metal, bonds, real estate and others.
If the prices of these assets don't move together, along with the market, it will create less risk for your entire portfolio. By averaging your holdings, the diversified portfolio's overall return should be greater than your lowest performing investment.
Today there are many investment vehicles that allow you to achieve the level of diversification that is suitable for your financial and lifestyle goals at a low cost.
Various index or mutual funds and ETFs (exchange traded funds) execute numerous strategies intended to diversify risk.
Despite the fast growth in the China market, local private investors can allow their portfolios to become too concentrated in mainland-listed A shares. Long-term investment planning rather than market time or trading should drive diversification and wealth planning.
Your portfolio should be checked and rebalanced every year to ensure that it is diversified enough to meet your goals. Investors need to work with their independent advisers or investment bankers on asset allocation. According to Jean Claude Humair, regional market manager for UBS: 'Clients need to know that asset allocation [between fixed income and equities] drives 90 per cent of long-term returns.