An introduction to understanding assets and the importance of diversification to reduce your investing risk.
You can have all your invested money in one asset - for instance, a single rental property. Or maybe, you can have your invested money spread across many different types of assets - some in a managed fund, some in KiwiSaver and some in term deposits.
Diversification is a way of describing how diverse your investments are. A single rental is not a well-diversified investment portfolio. The more types of assets you invest in, the more diversified your investment portfolio is.
Assets can make money, and they can lose money. Having all your money in a single asset leaves you at risk of something going wrong with that asset. By diversifying, you reduce your risk of losses.
Risk and return go hand in hand
In general, the riskier an investment is, the higher the potential return will be. Conservative funds, for instance, will have more lower-risk assets, so their long-term return is likely to be lower. In comparison, aggressive funds will have a greater proportion of higher-risk assets, so they are likely to result in higher returns over time. But they can also fall in value to the same degree.
To choose the best investments for your circumstances and risk profile, you need advice tailored just for you. Talk to a Financial Adviser for guidance on how to get started.
Things you should know.
The material on this webpage is provided for information purposes only and is not a recommendation or opinion in relation to investments.