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Diversification

Diversification is important in investing to spread risk and minimise potential losses.

 

What you’ll learn

  • What is diversification?
  • Why you should do it
  • How to diversify your investments.

     

What is diversification?

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.

Why should I do it?

Mitigate risk

Choosing a mix of different investments, industries and geographies can spread your risk. This can help protect against market declines – if one area falls another might rise.

Help improve returns

Investing across different assets, not holding all your (nest) eggs in one basket can help improve steady long term returns. If you have a bit of everything in your portfolio, it can help catch market growth wherever that is.

Help achieve your investment goals

Diversification gives you the flexibility to switch between growth and income as your needs change.

How do I do it?

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.

 

Research the market

It’s easy to pick your best mix – for more information, ideas and our shortlists, head to our research centre.

Research centre

Please remember that the value of investments and the income from them can fall as well as rise, and you may get back less than you invest. If you’re not sure about investing, seek financial advice. There will normally be a charge for that advice. You may be eligible for financial advice through our partnership with Schroders Personal Wealth. Tax treatment depends on individual circumstances and may be subject to change in the future.

Important legal information

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.