- There are many factors to consider with portfolio diversification
- It is prudent to be positioned for a range of possible scenarios
Portfolio diversification is financial planning 101. The objective is to allocate capital in a way that reduces exposure to any one particular asset or risk and lowers the volatility of your investment portfolio. The difficulty is working out how to balance diversification with attractive growth prospects.
There are many components to consider when checking you are adequately diversified, both across and within asset classes. Traditionally, investors would blend equities and bonds which were negatively correlated and had the effect of smoothing investment returns. As loose monetary policy since the global financial crisis has had the effect of inflating both bond and equity prices, the diversification attributes may not be as clear as they once were.