Diversification – a great way to manage risk
When investing, it makes sense not to put all your eggs in one basket. Diversification, or spreading your money across a number of different investments, reduces your portfolio’s reliance on the performance of any single investment. If your portfolio is diversified and one investment falls in value, others that are performing well may make up for the loss.
There are many ways to diversify, as shown below.
| Ways to diversify | How to do it |
|---|---|
Across asset classes |
Include a number of growth and defensive asset classes. |
Across investments within an asset class |
An Australian shares portfolio option, for example, includes a number of types of shares across different industries and companies. |
Across investment managers |
Investment managers make the decisions about which investments to buy. They have different investment styles that are suited to different market conditions. Diversification means reducing exposure to any one style. |
Across countries |
Reduce exposure to the economic and currency conditions in any one country or region. |
