The risk factor has existed since the existence of the world and will exist until the apocalypse. The risk can never be reduced to zero but can be reduced to minimum levels. Just as there is the concept of occupational safety to minimize the risk of injury to employees, the same is true for investment. The best way to reduce investment risk is to diversify.
What is Investment Portfolio Diversification?
Before talking about the concept of portfolio diversification, it would be more accurate to answer the question of what is a portfolio. It is held by the person or persons for the purpose of generating income; It is the total value of investment instruments such as foreign currency (Dollar, Euro..), golds, bonds, stocks, deposits, options, real estate and cash. Considering the fact that these investment instruments will not always provide returns and may cause losses at times, portfolio diversification will be the best method to reduce risk.
This concept is basically the process of allocating savings to more than one investment instrument in order to reduce risk. For example; While binary options provide high returns, in the long run, they also have a high level of risk. In order to tolerate these risk levels, low-yielding and low-risk investment instruments such as government bonds can be added to the investment portfolio.
And also make sure you know enough about the investment strategy before making high-yield investments. As we mentioned in this example, investors who will trade in binary options, which is one of the aggressive and high-yield investment strategies, may want to get more information on the strategy they tend to invest in. Click here to learn all technical details on binary options.
Diversification in Investment and its Advantages
Portfolio diversification basically provides the following advantages;
Reducing risk: This is the most important reason for the idea of investment diversification. While any financial instrument may perform poorly for a certain period of time, it may perform better than any other financial instrument. If you allocate all of your assets to a single investment instrument, you will both risk your asset and miss out on possible investment returns. Therefore, it will be beneficial for your investment future to diversify your investment portfolio as much as possible.
Protecting capital: Investors who are particularly risk-averse may want to protect their capital. Diversifying the portfolio in order to protect the investment capital (principal) will be beneficial for your investment future.
Why Diversify?
Market conditions may increase the value of any investment instrument while lowering the value of another investment instrument. Therefore, it would be beneficial to include investment instruments whose prices move in the opposite direction in the portfolio. What do we mean by that? If the price of one investment instrument increases while the other increases, it means that these two investment instruments are moving in opposite directions. Thus, you can see an increase in your returns while reducing your risks by diversifying your portfolio.
Portfolio management
Portfolio management is the process of managing investors’ portfolios to generate returns. Portfolio consultants or portfolio managers, on the other hand, are specialists who assist with portfolio management. Good Income, which wants its investment advisory service to be accessible to everyone, also assists its users in managing their portfolios. With good income; With a Nobel laureate algorithm and expert control, you can diversify your portfolio appropriately to characterize your investor.
