Wealth Guide: The world is full of interesting assets and money can be earned in multiple ways. Diversification is buying a variety of stocks and asset allocation is grossly undervalued. Diversifying your investments involves investing in a variety of asset classes, such as direct stocks, mutual funds, debt funds, term deposits, real estate, precious metals such as gold and money. Ashis Sarangi, SEBI Registered Investment Advisor at Pickright Technologies, shares his knowledge on the need for portfolio diversification and decodes why investing in an asset class is not a wise choice:-
“There’s this myth that you have to pick an asset class to invest in and stick with it. But the truth is that if you’re smart and adventurous enough, you can make money out of almost anything. Suppose you like to invest long-term in gold and silver, but you would also like to make money in stocks.You can buy a portfolio of global stocks and also buy gold, silver and other precious metals to protect against stock market risk. Although it is not easy to decide when to switch from one to the other, it is possible. Indeed, most investors today do not want to You can only make money with stocks or real estate,” says Ashis Sarangi.
Sarangi adds: “The benefits of diversifying your investment portfolio only hold if the underlying investments in a portfolio are uncorrelated, i.e. they react differently, often in opposite ways. , market influences.
To suggest Benefits of diversificationit lists:-
• Reduces the effect of market volatility
• Support for multi-asset investment.
• Helps achieve long-term financial goals
• Compound interest assistance
• Helps keep you recession free
He added: “One should spread assets across multiple asset classes in one’s portfolio to diversify risk. Each asset class follows different economic cycles. For example, interest rates and gold often make opposite things that can cause you to gain or lose money.In a bear bond market, stocks often do well.On the other hand, in a bull stock market, bonds often do poorly.By having different asset classes, your portfolio will perform well even if some of those assets perform poorly.
“An emergency fund is completely ignored by investors today. It is very important to cash out at the time of emergency. It is important to have an emergency corpus. If you don’t have one, you must build it up immediately.The purpose is to provide money when you lose your job, get sick, have a car accident, house fire, or any other unexpected event for which you need the money. emergency fund is different from the money you use every day.You want to keep most of your emergency fund in a safe place, where the risk on the capital is low and where you can use at any time a savings account or liquid funds, etc,” he advised.
“When investing in stocks, studies and mathematical models, the best return and risk reduction is achieved by maintaining a well-diversified portfolio of 20-30 companies. Investing in more assets provides more benefits of Diversification reduces risk Portfolio diversification is the easiest and most effective way to reduce investment risk A well-diversified portfolio contains a mix of stocks from different sectors and market capitalizations Diversification is a strategy aimed at minimizing risk. For example, instead of putting all your money in a single technology stock, you invest in several technology stocks, a variety of stocks from different sectors. This way, if the market deteriorates in the sector particular in which you have invested, you will still have money in the stock market so that you do not end up completely nt broke Diversification attempts to smooth out unsystematic risk events (non-market events) in a portfolio, i.e. large gains will help offset losses in other stocks,” he said. he concluded.
(Disclaimer: Opinions/suggestions/advice expressed here in this article are investment experts only. Zee Business suggests its readers consult their investment advisors before making any financial decisions.)