In the past few weeks we have witnessed a volatile and a choppy market which is struggling to recover. Almost all the important sectors which include technology, Metal, realty, oil & gas and financial sectors are trading volatile. During these times investors’ confidence has shrunk. People are investing more on low-risk instruments which seems to be lucrative. A smart investor should diversify their portfolio as this will help them to sail through these unpredictable times.
In volatile markets all the assets do not go down or up simultaneously. Some go up and others might bear the brunt and go down. A good diversified portfolio always exhibits consistent performance. Investors should combine variety of investments including real estate, Stocks, bonds, gold etc this reduces risk.
There are two types of risk in the market; systematic and unsystematic risk. In order to protect your investments from unsystematic risk diversification is the best remedy. Unsystematic risks are those risks which affects to a specific industry, company, and sector etc like labour unions strike, government policy, new tax rule on electronic goods etc. Systematic risk affects the entire markets like foreign investment policy, investment policy changes, global security threats, shift in socio-economic conditions etc. Though systematic risks cannot be avoided but still by diversifying we can reduce our losses. Sometimes over diversification also erodes portfolio performance. Presently the market uncertainty and global crisis have eroded people’s fund. In order to safeguard their investments investors should diversify their portfolio.
“Bell the bull says: Do not put all eggs in one basket.”