The importance of portfolio diversification

Logic Wealth Planning, business objectives succession planning

The Covid-19 pandemic has highlighted something many financial advisers have recommended for years – the importance of portfolio diversification!

March 2020 has already entered the financial market history books. It sits uncomfortably alongside other events when volatility also reigned supreme. Such uncertainty and turmoil leads to panic.

Seeing portfolio values drop quickly unsettles everyone. However, a diverse portfolio will always perform better and ride out the tough times.

From day one, your financial adviser should encourage you to look at your objectives – short, medium and longer term. You should also carefully consider your attitude to risk.

This equips your adviser to recommend the best investment options that achieve your objectives without being too exposed to specific investments.

Ultimately, that will deliver a diverse portfolio.  

Were you ready for uncertainty?    

The coronavirus pandemic made investors think long and hard about their decisions. There was a temptation to cash in, to cut early losses and avoid losing even more.

For many investors, there were serious concerns. Nobody knew how long the virus would affect world health, and therefore the knock-on effects to markets and economic confidence.

While that sounds dramatic, it’s human nature – we do what it takes to survive.

Many investors were not ready for such large-scale uncertainty. They had not anticipated such a major reversal of stock values.   

Don’t panic, and revisit your objectives  

Taking stock and talking to an independent adviser was the route taken by those who paused to think about the fast-moving Covid-19 situation.

Knee-jerk reactions do not help anyone.

Yes, the early losses were severe. However, a calm discussion with an experienced adviser will have equipped any investor with historic data. Markets do recover. Trying to second guess price movement is almost impossible.    

As some company values dropped, others rose. There were winners and losers in all sectors.

Revisiting your overall investment objectives helps to guide future decision making. As we have all seen, global events can change how we live. This could change your outlook, so regular reviews with an adviser are essential.

If your plans and financial goals have not changed, remaining invested is usually the most appropriate course of action.

Also, keeping funds invested gives a better chance of recovering losses as and when market conditions improve.

Cash in your investments as market values are falling and you crystallise losses. You will struggle to get back to previous levels.  

How do you create a diverse investment portfolio?  

If the drama of 2020 was too much for your nerves, perhaps you need to reassess your risk profile and how your money is managed.

Understanding what level of risk you are prepared to expose your investments to is just one part of the process.

Calculate your risk profile, how and when you plan to access any investments or retirement funds, and then a diverse portfolio can be recommended in line with your plans.  

Talking through the best options for you and your investments with a fully qualified IFA ensures that the best possible fit is achieved.

A diverse portfolio allows you to enjoy smoother, less volatile investment growth over the long term.

In the first instance, please call us on 0808 1234 321 or email info@logic-wp.com to start the discussion about building a diverse portfolio.

While social distancing remains in place, Logic Wealth Planning will make every effort to communicate with clients in any way that is convenient and safe.

Invest for the long term

The coronavirus has taught many lessons. It has emphasised how volatile financial markets can be, and that the better returns are nearly always made by staying invested with a well balanced portfolio over several years, if not longer.  

Please be aware the value of investments or income from them can fall as well as rise. We are here to help you make informed decisions as you put important things in place for you and your family.

* Logic Wealth Planning provides independent financial advice in Manchester, Bury, Rochdale, Cheshire, and the surrounding area, but not limited to the region.