3 Great Tips That You Can Use To Diversify Your Share Portfolio In Order To Minimise Risk
Diversifying any type of share portfolio is a prudent strategy that Australian investors should think about using in order to minimise risk and maximise potential returns. Indeed, in the increasingly volatile global economic markets, it is imperative to have a well-rounded investment approach that spreads risk across a range of different assets. Moreover, by diversifying your portfolio, you will be able to protect yourself from the impact of adverse events in any one area of the global economy, manufacturing sector or company. As a result, you must continue reading this article, because it will explore three great tips that you will be able to use to diversify your Australian share portfolio effectively.
- Choose investments in a range of industries and sectors
- Look beyond domestic markets to reduce risk
- Incorporate alternative assets into your share portfolio
1. Choose a range of industries
Straight off the bat, it is important to state that you should think about trading shares in a range of industries and sectors. Moreover, by spreading your investments across several sectors such as technology, healthcare, finance and consumer goods, you will be able to reduce the impact of sector-specific risks impacting your investment. However, it is essential to be aware that risk is a fundamental aspect of the investment process while it is important to note that the capital value of your investment can fluctuate over some time.
2. Look beyond domestic markets
Secondly, whenever you want to diversify your share portfolio you must look beyond domestic markets and consider investing internationally. Similarly, investing in overseas markets can provide you with exposure to different economies, currencies and geopolitical factors, further diversifying your portfolio, while also potentially increasing the amount of risk that you will be exposed to, this can be particularly beneficial for Australian investors, given the relatively small size of the domestic market, especially when compared to global markets. Furthermore, international diversification can also offer you considerable opportunities for higher returns, especially because some overseas markets may experience faster growth than the Australian market.
3. Incorporate alternative assets
Finally, it is imperative to incorporate a range of alternative assets into your portfolio, even though shares are a popular choice for many Australian investors, several alternative assets such as commodities, trusts and bonds can also offer you additional diversification benefits. These types of assets often have low correlations with traditional equities, meaning that their performance may not be closely tied to the performance of the Australian stock market while including several alternative assets in your shed portfolio potentially helps reduce overall portfolio volatility and enhance risk-adjusted returns on your investment.
Therefore, after all is said and done, diversifying your share portfolio is a fundamental strategy for minimising the amount of risk that you are exposed to as well as maximising returns on your investment while by spreading your investments across several different industries, countries and asset classes, you will be able to protect yourself from the impact of adverse global economic events and take advantage of opportunities for growth in the future.