With investing, the old saying ‘don’t put all your eggs in one basket’ rings true. To improve the potential for long-term gains and spread risk, the best advice is to diversify your investment across a range of companies, asset classes and geographical regions. This helps to minimise the impact a poor performing economic region or company may have on your overall portfolio.
When it comes to choosing asset classes there are the ‘traditional’ asset classes – cash, equities or shares and bonds – together with commercial property and commodities.
The advantage of cash is its liquidity. Money held in cash accounts can be accessed easily and present a low risk for the investor.
Bonds or fixed-interest investments
These are investments that provide a fixed, regular income over a set period of time in the form of interest. Some are government-backed.
Stocks or equities
Equities are shares of ownership issued by publicly-traded companies that are bought and sold on stock exchanges. You can potentially profit from shares through a rise in the price or by receiving dividends from them. Of course, you also risk losing your money too if the stock performs poorly.
Investing in property can be as simple as owning your own home. However when it comes to portfolio investments, typically property investments are made in commercial property. This includes warehouses, offices, industrial estates and shopping centres, often owned through pooled investment funds.
Other asset classes
This category covers investments that don’t fall into the main asset classes shown above, and can include commodities such as oil or gold, foreign currency, or even art and antiques. These are generally high risk because their value depends on conditions within a specific market.
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.