What a healthy financial portfolio should look like
Whether you’re a late investment bloomer or you’re hoping to join the working world and begin building your financial dynasty in 2020, it’s never too early – or too late – to start learning about the world of investing and how to achieve your financial goals.
What does a healthy portfolio look like?
Portfolio diversification, meaning picking a range of assets to minimize your risks while maximizing your potential returns, is a good rule of thumb. A good investment portfolio usually includes a range of blue chip and potential growth shares, as well as other investments like bonds, index funds and bank accounts. Diversification is a battle cry for many financial planners, fund managers, and individual investors alike. It is a management strategy that blends different investments in a single portfolio. The idea behind diversification is that a variety of investments will yield a higher return. It also suggests that investors will face lower risk by investing in different vehicles.
In a diversified portfolio, the assets don't correlate with each other. When the value of one rises, the value of the other falls. It lowers overall risk because, no matter what the economy does, some asset classes will benefit. That offsets losses in the other assets. Risk is also reduced because it's rare that the entire portfolio would be wiped out by any single event.
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