DIVERSIFICATION OF INVESTMENT FUND

No one can consistently predict how markets will perform and there have undoubtedly been occasion when the unit trust investment takes an unexpected tumble. But it does not mean that you should not be investing. In reality, regardless of global events, economic conditions and short term setbacks, the unit trust investment has prospered over the past ten years.

To ensure your wealth continues to grow in all market conditions, it is vital that your investment portfolio is well diversified. The objective of diversification is to reduce the risk of your investment portfolio with minimal impact to your expected returns.

In other words, holding the investment portfolio that does not perform in tandem exposes your wealth to less risk although impact to expected returns remains minimal. The lack of diversification causes the investor’s investment portfolio to experience greater volatility. In the long run, this portfolio makes low returns compared to another portfolio of the same initial value but is more diversified and less volatile.

Basically, there are two (2) steps to take when diversifying a portfolio:

1) To develop an asset allocation plan and this involves spreading your investment capital across different fund categories such as equity, balanced, money market and bond.

2) To diversify within a single fund category. For example, in the equity fund of your portfolio. Diversifying across various large and small cap shares.

(Adapted source from Bizweek, The Star)