Over here at FemmeAffairs, we’re all about being the best version of the contemporary woman you can be. One of the ways to do that is to be deliberate about your finances by diversifying your investments.
Whether you work from home, work a nine to five job or you run a physical business, investing your savings is paramount. Your savings can act as a buffer for when life happens: such as having to pay for an unexpected illness, pay a loan, rent and buying a much needed vehicle just to mention a few. Investing your savings, however, is one sure way to build wealth. With your savings sitting in the bank, your money does not grow except the little reward your bank gives you which is almost next to nothing. With investments, what you do is put your money into vehicles which have the potential of earning you meaningful and satisfying returns.
One way to be deliberate about your finance is to diversify your investments. For the sake of the investment newbie, diversification in investment basically means spreading your investments or capital over several portfolios in order to reduce risks and also so that you’re not reliant on a single investment.
With investment opportunities available in the stock market, real estate, exchange-traded funds (ETFs), basic commodities, government bonds, treasury bills along with money market vehicles among others; with diversification, benefits outweigh the risks.
Diversification comes with three key benefits:
As a result of the fact that your capital is spread among various portfolios you reduce the risk of losing your capital or at least some of it. We all know for certain that nothing good comes easy and this is the case with investments, they come with risks. Having several investment portfolios allow you to reduce risks. In the case, whereby, a particular investment performs badly, others will do well. And when the unfortunate event of you losing your capital happens, you have some of it left in other investments.
ACTS AS A SAFETY NET AGAINST MARKET VOLATILITY
In addition to mitigating risks, you get the benefit of having a safety net in better performing investments when one or more investments perform poorly in the market. This is especially great when you do not get to earn any money from one investment, you get to earn in other investments.
PROVIDES LONG RANGE AND LONG TERM BENEFITS
Diversifying your investments brings you several range of income, you get to earn at the same time from different portfolios. With diversification, you might not get to enjoy short term benefits but your investments are sure of generating high returns in the long run. With diversification, you get to reduce capital on investments because you have spread it across various portfolios and so income from each portfolio is reduced. Income from your investments might not mean so much in the short term but will have immense benefits in the long term.
Even though we believe that the pros of diversification outweigh its cons, we feel you have to keep in mind the cons too.
Keeping your diversified investment portfolio balanced can be difficult and time consuming. You also get less returns, take for example a particular stock fares very well in the market, you only gain a fraction as opposed to when you put in all of your capital. Basically it can come with smaller rewards because you’ve kept the risk at a minimum.
We advise you not to take this blog post in place of financial advice, please do speak to a financial expert when you decide to start your investment journey.