Where money is concerned, putting all your eggs in one basket is one of the quickest paths to financial ruin. You can go from being stable, to not having very much at all in a heartbeat. Banks go bust, funds burst into flames when they’re mismanaged, and businesses fail. This is one of the reasons why we’re so pleased that our customers are insured against death, unemployment and chronic illness, but that’s beside the point. To bet all your chips on one horse, is to leave your future to chance.
REDUCE RISK
When you diversify your portfolio you limit risk by spreading it around multiple investments. This way, even if one of them fails horrendously your overall portfolio will still make a pretty picture. You manage volatility and risk, because not all industries, stocks and asset categories move together. If one is down, the other is very likely to be up. Thus, you’re best placed to mitigate against industry specific risks.
CREATE MORE OPPORTUNITIES FOR GAINS
When you’re dealing with finance, it’s very easy to miss opportunities because you’re uncertain and you’d much rather stick to what you know. However, this is one reason why people miss potential winners. With a diversified portfolio, your hands are quite literally in all the pies and if one of them turns out to be particularly lucrative, you can direct your funds accordingly.
PROTECT AND GROW YOUR INVESTMENT
The only downside to diversification is over-diversification, and that’s when you’ve spread your risk over too many asset classes. This shrinks your returns and confines your portfolio’s performance to mediocrity, and this isn’t something that’s particularly desirable. You want to have diversified enough to protect yourself against specific risks, like a crash in the price of oil, or a surprise outbreak of bird flu, but you still want to have the best investment ideas. In any case, even if your portfolio’s over diversified, your gains may be mediocre, but you’ll never be at risk of losing everything. And this is one of the best things about the creation of a debt marketplace like FINT.ng. It’s a brand new asset class you can use to hedge against booms and busts.
Visit www.lend.fint.ng to learn more.