Diversification is the mantra for any successful portfolio. It helps the investor in minimizing their risk and maximizing their gains over a period of time. Many advisors preach the following saying”Do not put all your eggs in one basket”. This rule should be followed religiously.
In some cases, investors just get lucky by a hair breadth when they might have gained good returns on their savings which were parked in one fund. But the lucky streak cannot be struck always. Most times, investors lose out on their life saving and enter into debts like home loan, car loan etc, in or to fulfill their financial requirements. This is a situation which you as an investor, need to avoid by taking prudent decisions.
Diversity should be done on the basis of style and number. Make sure you invest in funds which are different from each other and restrict them to a minimum number. For example, the market today has a lot to offer to investors depending on their risk appetites and their financial goals and requirements. Funds such as, mid cap, small cap, large cap, hybrid funds, equity funds, debt funds, sectoral funds etc are some of the wide variety that an investor can choose from. And again, depending on the tenure, you as investor can choose from a term that is as small as a 3 month investment period, known as the ultra short term fund or for as long as 15-20 years in a Public Provident Fund, whatever may be the financial requirement.
Apart from obtaining the benefits of remaining invested in these funds, you can look towards diversifying not only your needs but also for your family. Look into the types of insurance policies and the type of risk cover they provide. Make sure that you opt only for pure insurance covers and not anything that deviates from this purpose. For example, opting for an insurance cover that invests in mutual funds is only a waste since, on the eventuality of a market crash, you lose out on your savings rendering in the loss of your purpose and your valued money. If you are an employee and you have a health insurance cover provided by your employer, we still would advise you to opt for an individual health cover along with a critical illness cover so as to provide comprehensive health coverage.
Next option up for diversification is your investment in gold Funds. Investing in gold through ETFs provides you with the benefit of storage and safety and easy to trade asset, ETFs provide a portfolio a much required edge as they help the investor take advantage of the rising gold prices. But remember, the value of your investments should not exceed more than 5% of your total investments.
All these assets juggling procedures should be carried out while you are in your late 30s and early 40s. And let them be saved in until a desirable period till the time you approach your retirement. Once you approach the retirement age, it is best to move your funds from equity to debt assets. Another thing you need to bear in mind is that, the process of diversification is best left abandoned. The reason why most financial advisors say to transfer the fund to a debt fund is so that you as an investor do not lose out all those years of hard earned savings due to a last minute market crash. Transferring it to a debt fund well before 12-24 months is what is advised. These funds when parked in debt funds, gives you the stability against any unforeseen market crashes and also does not keep your funds idle.