They say, “Don’t put all your eggs in one basket,” for a reason!
Investing all your hard-earned money in one market or asset class can be very risky and offer limited growth. In contrast, diversification reduces risk by creating a heterogeneous portfolio with financial instruments from different geographies and asset classes. The technique aims to maximize returns by investing in assets that react differently to the same uncertain event.
For example, if inflation shows a trend of steady rising, interest rates are likely to follow - this event will favorably impact new bond issuances, attracting money from equity markets, thus adversely impacting equity markets. If you have both bonds and equities in your portfolio which are in turn actively monitored and managed, the same event will protect your portfolio value, as compared to the drop in value you may experience if you hold only equities, or only bonds, in your portfolio.
Diverse investments reap more returns and reduce risks compared to concentrated portfolios. However, only a few investors know about the actual impact of diversification.
Read on to get a deeper understanding of how a diverse portfolio behaves and responds to the market.
Leverage global opportunities to earn delta returns
When you diversify your portfolio across countries, you get to take advantage of how the investment index of that particular country flows. For example, the Indian Index has a stronger tilt towards traditional industries rather than innovative companies. Whereas some western countries often sway towards disruptive technologies.
Furthermore, factors that influence the returns may not always depend on the market fluctuations but also on the culture and advancement priorities.
Hence, diverse global funds are not completely dependent on one market or its fluctuations. They help you earn higher returns from factors beyond traditional market movements.
Without diversifying your investments, you pay the opportunity cost of a non-diversified portfolio. Different growth cycles often do not benefit you and require you to depend on static or repetitive market movements to earn returns. In the absence of this, you often lose money.
Manage risk and reduce volatility
A diversified portfolio is less risky than a concentrated portfolio. They tend to be far less
volatile because they are dependent on the complementarity of different asset classes. This concept works by taking two or more assets that move in opposite directions in specific environments.
During market downturns, a well-diversified portfolio can absorb the shocks. Global diversification often is one of the strongest shields against market downturns. The risk is well-spread across different asset classes and also across different geographies.
Let’s take for instance, the US and Indian markets. The standard deviation for the Indian Index is higher vs. the US: <1% over 3 years; 3% over ten years; coupled with FX benefit of 5.07% over the last five years and low correlation between the two markets (0.36) makes diversification real.
Many investors tend to make the mistake of investing the majority of their money in only a few asset classes yielding high returns. While such investments may earn high returns in a short span, the portfolio remains at the mercy of market movements.
A diversified portfolio gives better risk-adjusted returns and makes up for the non-performance of one asset class with its heterogeneity to limit the loss in a better way.
Invest in what you care about
A non-diversified portfolio will push you towards low-risk and conventional asset classes. The portfolio composition is often determined by which assets are being favored by the markets at the time. A diversified portfolio demands you to invest in varied assets allowing you to pick sectors, industries, asset classes, and geographies that you are interested in.
You could invest in your favorite OTT platform like Netflix or a very innovative company like TESLA. If you believe in a company or use its product and see a disruptive opportunity in a company, then diversifying is your best bet to invest in such potential.
With a diversified portfolio, you will be earning from investments that matter to you. And furthering the sectors and innovations that you truly care about.
Ensure capital security
The low-risk nature of a diversified portfolio ensures that the capital amount is largely protected while keeping a low-risk appetite. The stability of diversified asset classes protects the initial investment made by the investor against market volatility.
At ShiftAltCap, we do the heavy lifting to pick and choose the assets from 5000+ instruments and help you to sustain your capital investment while making sure you earn impressive returns.
No constant monitoring needed to earn returns
With a concentrated portfolio, most of your attention will be diverted into studying the market to take the next best action. Take your attention away, and you might have already lost some of your capital.
A diversified portfolio will get you stable returns while giving you peace of mind. No need to excessively monitor all your assets as they are largely shock-proof against market fluctuations.
If you are still a bit anxious about monitoring your diverse portfolios, ShiftAltCap is your best bet. We offer pre-built portfolios to solve the problem of how, when, and where to invest in. An easy-to-navigate dashboard and active portfolio management by 360-degree tracking of macro-trends, socio-political circumstances, and economic cycles will relieve most of your concerns.
Investors often delay or avoid diversification because of limited info and passive management and prefer to play by the conventional investing rules. With ShiftAltCap’s actively managed investment stacks, you can earn higher returns without worrying about losses.
ShiftAltCapital will truly diversify your funds with alternative assets - that comprise all four asset classes viz. Equities, Bonds, Real Estate, and Commodities in each portfolio. These asset classes react differently to different uncertain events, enabling your money to be significantly more resilient to shocks, and yet deliver higher returns consistently.
Our two pre-built investment stacks are well-crafted with globally competitive businesses listed on NYSE. Our deep statistics analyze underlying patterns that are out of grasp for conventional market analysis methods.
Enjoy benefits such as easy liquidity with no exit load, no lock-in periods, and superior returns with a demonstrated CAGR of 30% and 19% respectively in dollars.
If you want to know more about our diversified investments, get in touch with us here and start on your investment journey with us!