Published on September 5th, 2015 | by Pete0
Establishing a Diverse Portfolio Of Diverse Portfolios
Investors have been told for years that they should diversify their investment portfolio in order to minimise risk and avoid losing everything. Invest in stocks from different countries, companies in different industries and sectors, and even in a combination of dividend and non-dividend stocks. However, the best way to ensure true diversification is not to create one diverse portfolio that contains low- and high-risk investments, but to create a portfolio of portfolios. To create such a diverse portfolio, you will need a diverse broker that can manage all of your trading.
If you only spend a relatively small amount of time managing your investments, or you only have a small amount of money to invest, then this approach is unlikely to work. Carrying five portfolios means managing each one separately, as well as your overall portfolio, which means a lot more work than having a single investment folder.
On the other hand, if you have a large amount to invest and you enjoy closely monitoring and managing your investments, then this could provide you with an effective and efficient investment technique.
A defensive portfolio is one that contains stocks that are not prone to fluctuation as a result of major market shifts. For example, cigarettes continue to sell whether there is a recession or not, and a defensive portfolio can be used as the solid base for an overall investment portfolio. This type of investment will often attract dividends as well.
An income portfolio, however, is one that is geared specifically towards the payment of dividends and other regular returns. Utility companies, real estate companies, and well-established limited companies can provide some potential for growth while also paying regular dividends to investors.
An aggressive portfolio has higher risks, but also has higher returns. These stocks are much more prone to movement than an average stock. The beta of a stock is ratio of how much a stock moves compared to the market, so a stock with a beta of 2 would move twice as much as the overall market in either direction. These companies are usually young, can be difficult to find, and while there is certainly greater opportunity for reward, this type of portfolio carries much greater risk.
The speculative portfolio is the highest risk of all. This portfolio should only represent a relatively small portion of your overall portfolio, and will require that you take some speculative plays. This type of portfolio usually means investing in IPOs and stocks in companies that look set for a takeover.
A hybrid portfolio is one that contains a much more diverse range of investment types, so as well as bonds and securities, you would invest in commodities but also in art, real estate, and even investments like wine. This type of portfolio can take up a lot of your time and will require dedicated research, but offers diversification across asset classes and not just stock types.