Diversifying to Reduce Your Overall Investment Risk
Have you diversified to reduce your overall investment risk? Even if you are currently investing in funds or are relying on the expertise of a discretionary investment manager, it’s always a good idea to think about diversification.
1. Diversifying Through Investment Manager or Fund Selection
When equity markets are in a prolonged bull-market rise, you may be more focused on the returns you are receiving than the risks you are facing.
During these periods, you may be tempted to pay less attention to specific equity management styles and the potential benefits of style offset for diversifying and reducing your overall investment risk.
However, when the overall market declines or specific market sectors decline relative to others, then you may start to question why your portfolio is more volatile than the market.
Depending on the investment management style used by your funds or investment manager, your overall portfolio may be less diversified than you think for your specific goals. Ideally, you want to optimize return and minimize risk relative to your investment objectives.
2. Diversifying Through Asset Class Selection
Investing all or a portion of your assets across different investment managers who invest in different asset classes can diversify and help reduce your overall investment risk.
Of course, this is subject to the size of your investable assets and can be achieved by investing a portion of your investable assets in various equity investments, fixed income, and alternative assets.
By hiring several investment managers who invest in different asset classes, the likelihood of a less volatile or lower risk overall portfolio can be increased over the long term.
3. Beware of Over-Diversification
Diversification is one of those things where more is not always better. Over-diversification can result if you invest in too many funds of various types or employ too many investment managers. At best, you may achieve returns and performance similar to owning several quasi-index funds – but at a much higher cost.
Always consult a qualified financial professional or investment manager to provide guidance on diversifying and reducing your overall investment risk relative to your specific investment objectives.
Diversifying with Bloom Investment Counsel, Inc.
At Bloom we solely focus on dividend-paying equities which have over many decades proven to be less volatile over the long term and outperform non-dividend paying equities. Within this asset class we diversify across sectors (industries).
For nearly 40 years, Bloom Investment Counsel, Inc. has built customized equity portfolios that help our clients sleep at night with a focus on income, protection and preservation, especially in volatile market periods.
Should our clients wish to also invest in other asset classes, we are pleased to partner with their other managers to ensure that all their investment diversification needs are met.
This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this content should consult with his or her financial partner or advisor.