buryflyer_oct09.qxp 23/09/2009 10:42 Page 10
Local Business News - Financial Advice
Is Your Portfolio Properly Diversified?
submitted by Stephen Griffiths
There's a simple secret to investment success:
diversify your investments and hold them for the
long term. Studies show that the vast majority of
investment returns are attributable to your asset
mix, rather than the individual investments you
choose.But exactly what do financial experts
mean when they say 'diversify'? And how do you
know whether you're properly diversified?
Diversification means holding a wide range of investments in
your portfolio, instead of placing large bets on any one secu-
rity or type of asset. A diversified portfolio should encompass
all the major asset classes: cash and cash equivalent invest-
ments, fixed income and equities. Some experts break the
mix down even further: cash, income, growth, growth and
income and aggressive investments. Ideally, your portfolio
should be further diversified by investing in international secu-
rities.
The benefits of diversification are straightforward: You take
advantage of a wide range of potential investment opportu-
nities and protect yourself from the risks of putting too many
of your eggs in one basket. How and where you diversify will
depend on factors such as your financial goals, the time you
have to reach them and your tolerance for investment risk.
Plus, your diversification strategy should be adjusted as you
move through life and your financial situation changes.
The first step on the road to a successful diversification strate-
gy is to take a comprehensive look at your investment portfo-
lio, including your pension arrangements. At the very least
you should be invested in all major asset classes. No single
asset type should account for an extremely large percentage
of your holdings. For example, if you have an 80% investment
in stocks or equity mutual funds, it's time to rebalance.
It's best to work with a financial adviser to assess your portfolio
and devise an appropriate strategy. A professional can make
recommendations based on your individual circumstances.
Here are some good starting points, depending on where
you are in life:
* When you're young: This is a good time for a large proportion
of equity growth investments. You have longer to take advantage of
the higher potential returns these investments offer.
* As you grow older: Moving into your peak earning years, it's
still a good time to concentrate on growth. You have more income
to invest and aiming for greater returns can boost wealth. But as
you get older shift toward preserving capital through income invest-
ments and other conservative assets. You need to protect some of
your wealth for retirement income.
* When retirement approaches: This is the time to really
concentrate on protecting wealth. The same strategy applies in
retirement. But still keep a growth element in your portfolio to help
offset inflation.
International investments should ideally be part of your portfo-
lio at all stages of your financial life. If you don't invest in inter-
national securities or mutual funds you miss out on much of
what the world has to offer.
01284 750754
stephen.griffiths@edwardjones.com
Provided by Stephen Griffiths
Edward Jones, 41 Churchgate Street,
Bury St Edmunds, Suffolk, IP33 1RG.
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