‘Investment Diversification

The warm up prior to starting any investment program is to choose a complete strategy before the race begins.

The obvious foundation stones involve several factors that include determining: the amount of cash available to invest; the time period before the cash is needed; the profit margin hoped for; the flexibility of changing strategy mid-term; the costs involved; the effects on one’s routine and lifestyle; the level of personal commitment to finish the race; and the possibility of unforeseen factors upsetting the overall financial planning goals.

Every portfolio will normally have investment diversification as a priority, since a wide spread of holdings is a sensible, practical and positive approach. All asset classes have very different market cycles, and a neatly spread pack of diversity will mean that, while some holdings will be turning in profits at a certain time, others could well be in their down-cycle period. Time is the controlling factor, and different assets need very varied breathing spaces to get their positive profit breaths together.

Cash invested in a number of different companies in a range of different businesses makes a lot of practical sense, since relying on one shining star to perform may pay off but it is clearly a greater gamble. The same applies in the choosing of a range of funds that are focused on a completely different range of economic areas. These spreads can then cover a whole world of economic activity, and can include geographical choices far and wide deliberately taking into account expertise which is different here, there and everywhere.

The intention is to reduce risk and to increase the possibilities of improved returns. In any track race, individuals (like companies) will outperform their rivals and bring in the winning formulas over their competitors. A mixed bag of investments is no different, and one company with red hot management and highly sought-after products will bring in the spoils, while others need more time to get their successes together. Investment diversification is the name of the frame.

The same applies when using fund management companies. It is possible at any time that a fund manager might make a poor investment decision which will pull down the performance of a specific fund, while another fund manager will make an excellent choice along the path to profit. A spread of choices covers these eventualities, and, over time, profits will mature. If one fund management company fails to produce profit, then it is clearly time to sell and buy elsewhere. Along the path it is important NOT to be closed-minded and rigid in sticking to the original plan, since trotting along with blinkers on does not allow for the inevitable changes in economic circumstances; economic changes require investment changes, and a new pack of investment diversification might well be the answer, with flexibility as the key.

Just like a pack of cards, investment choices depend on the underlying numbers game, and woven in there somewhere lie many an ace! Investment sectors cover a vast spectrum, and the pack includes ‘fixed-interest’ holdings; regular ‘dividend’ placements; ‘guaranteed’ payment structures; equities worldwide; property purchasing funds; emerging market company funds; mineral and energy funds; and on to eternity.

Planning, budgeting and saving are all steps in the right direction on the way to setting up your ultimate investment portfolio. Investment diversification is the king pin for long term success. The yellow brick road to maturity winds across open roads, crosses raging rivers and skips through mountain pathways, and the investor must keep pace with the changing circumstances. Tuning in to what the investment markets are doing along the way is essential to maintaining a steady pace, a clear vision, and up-to-date understanding of what is going on in the bubbling well of economic activity worldwide.

The economic clock has many built-in economic cycles. Boom times are the favorites, but recessions and depressions can buck the trends of handsome profits, while slow and speedy recovery periods favor the relaying of the golden eggs. Patience and perseverance are two key words on the road to successful financial planning, which is deeply rooted in a healthy commitment and focus on investment diversification.