Diversifying Your Portfolio

Responsible Investing Definition: Investing in different asset classes and in securities of many issuers in an attempt to reduce overall investment risk and to avoid damaging a portfolio’s performance by the poor performance of a single security or industry.

What does this actually mean?

With the age of digital assets and the new flood of interest around these coming into the markets, new age investors need to get their head around exactly what a diverse portfolio is and how it can sustain you for long term wealth.

So you want to diversify your portfolio but don’t know where to start?

Before we break this down into really simple graphs which anyone can create around their own portfolio, it’s important to remember that a diverse portfolio will be setup in the following way — CLASSES / CATEGORIES / ASSETS.

So for example, if you have the following classes — Real Estate / Precious Metals / Crypto / Shares, you will then break them down into the categories of the class.

1. Start with classes of investments.

Let’s use the class of ‘crypto’ as an example. The following categories could be used for the class of ‘crypto’ — ICO’s / HODL / TRADING.

2. List the categories in your class.

So sticking with the class of ‘crypto’, and the category ‘HODL’, you would then for example break it down into the following assets — Bitcoin / Litecoin / Ethereum.

3. Finish with the break down of assets.

It’s extremely important to set really strict guidelines for yourself around the percentages of your portfolio. Clearly mark the percentages on your graph and create a clear set of rules for yourself around it.

You can start this process by studying traditional investment rules. Most financial advisors would suggest not to put in more than 10% of your total portfolio into one risky class, for example ‘crypto’.

Above all, make sure that you are strict with yourself but remember this whole process is about learning, adapting and changing your percentage numbers until you are completely happy with it.

For even more information around this, please see this other article around ‘Three Types of Capital’.