However, investing across asset classes may help investors to reap the best of both worlds by reducing risk while simultaneously improving returns. Theoretically, undertaking less risk will yield lower returns. If they move in opposite directions, they are said to have a negative correlation and vice versa.Ī common way to diversify is to invest across asset classes, examples of which include cash, stocks, bonds, real estate, and commodities.ĭifferent asset classes such as stocks and bonds exhibit a low, possibly negative correlation between them.Īltering their compositions will produce different risk-return profiles that are tailored to meet the goals of individuals. Suppose there are two investments within a portfolio. Regardless of whether you ask a novice or a seasoned veteran, almost any investor will tell you that diversifying your portfolio is important.ĭiversification refers to spreading one’s holdings across different investments and/or asset classes to avoid over-exposure to any particular one.Īccording to finance professionals, the outcome of doing so is reduced risk as measured by lower portfolio volatility.Ī properly diversified portfolio contains securities that have low correlation with one another.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |