Harry Markowitz (Nobel prize laureate) is reported to have said that “diversification is the only free lunch in investing.”
The video below explains the concept of diversification in investing and why it is essential for managing risk and maximising returns.
Duncan Orr walks you through different types of diversification, including:
- Asset Class Diversification: Spreading investments across different asset classes e.g. shares, bonds, gold, and cash to avoid all assets moving up or down at the same time.
- Investment Style Diversification: Using different approaches, such as quality investing or market exposure (index investing), to smooth out performance fluctuations.
- Sector Diversification: Investing across different industries like technology, utilities, and healthcare to balance investment performance during market ups and downs.
- Geographic Diversification: Spreading investments across different countries, including developed and emerging markets, to capture growth opportunities worldwide.
The key takeaway is that no single asset, sector, or country consistently performs best, so a well-balanced, diversified portfolio helps reduce risk and improve long-term returns.
By watching the full video (click on the image) you’ll gain a deeper understanding of why diversification matters and how it can protect your investments from market volatility.
The Power of Diversification: How to Protect and Grow Your Investments
With just 8 minutes investment of your time, you’ll gain:
- Clear explanations with real data: Using a 15-year analysis of different asset classes, investment styles, sectors, and countries, you’ll see visually how markets move in different directions at different times.
- Actionable insights: It explains how to construct a well-balanced portfolio by blending different types of investments, reducing reliance on any single asset or region.
- Expert guidance: Duncan Orr challenges common misconceptions, such as putting all investments in top-performing markets like the U.S, and highlights why emerging markets and underperforming sectors still play a crucial role.
Now you have practical knowledge on how to diversify wisely and make informed investment decisions that align with your long-term financial goals.
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Notes:
Source: Thank you to ebi, innovative discretionary fund manager, for use of the graphics in the video.
- This video is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.
- The value of investments and any income from them can fall as well as rise. You may not get back the full amount invested.
- Past performance is used as a guide only; it is no guarantee of future performance.
