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Diversification is important in investing to spread risk and minimise potential losses.
A balanced diet should include foods of many colours. If your shopping basket looks a bit beige, you’re probably not getting enough nutrients.
The same principles apply in the world of investing. Sometimes we hear about a solitary miracle investment with a share price that just keeps growing, but these are very rare.
That’s why diversifying – or spreading risk – between different investments is important. The wider your diversification, the less likely you are to be affected when one investment takes a hit or there’s a general market downturn. In other words, a balanced diet keeps you in better shape for the long term.
When choosing or reviewing your investments, consider a mix of these:
1. Geographies
Different locations such as UK/International / European around the world. You could choose individual companies in different locations or consider a fund or ETF tracker.
2. Themes
There are many to choose from - for example retail, technology, energy, property to name a few. Choose a mix to balance your investment diet.
3. Sizes
A mix of larger / developed companies or markets and smaller or emerging ones.
4. Growth vs. Income
Again, a blend of equities (growth) and bonds (income) is best for long term stability.
It’s easy to pick your best mix – for more information, ideas and our shortlists, head to our research centre.
Halifax Share Dealing Limited. Registered in England and Wales no. 3195646. Registered Office: Trinity Road, Halifax, West Yorkshire, HX1 2RG. Authorised and regulated by the Financial Conduct Authority under registration number 183332. A Member of the London Stock Exchange and an HM Revenue & Customs Approved ISA Manager.