This is your sign to diversify your shares!
If you’ve spent any time around investing content especially ours, you’ve probably heard the word diversification thrown around a lot. It can sound a bit finance bro-ish at first, but once you understand it, it’s one of those concepts that just clicks i promise you. And honestly, it’s one of the most important things to get your head around if you’re investing in shares.
So let’s break it down in What is diversification, really?
Diversification is just a fancy way of saying “don’t put all your eggs in one basket”.
Instead of investing all your money into one company, one industry, or even one country, you spread your money across lots of different investments. That way, if one thing has a bad year, it doesn’t take your whole portfolio down with it.
Think of it like this:
If all your money is invested in one airline company and the travel industry has a rough time, your entire portfolio feels that hit. But if your money is spread across airlines, supermarkets, healthcare companies, banks and tech, a bad year in one area might be balanced out by stability or growth in another.
That’s diversification doing its job.'
And now why diversification is such a big deal with shares
Shares can be an amazing way to build long term wealth we already know this, but they can also be a bit of a rollercoaster. Individual companies can go through rough patches (theyre just like us lol), industries can fall out of favour, and markets can be impacted by things completely outside anyone’s control.
Diversification helps smooth out those ups and downs. It won’t stop your portfolio from ever going down, because that’s just part of investing, but it can help reduce the impact of any one thing going wrong. Because your risk is spread!!!!
Basically, it’s about managing risk, not avoiding it entirely.
And the good news is there are soooo many different ways you can diversify
Diversification isn’t just one thing, there are a few different layers to it.
Across industries
Investing across different sectors means you’re not relying on one part of the economy to do all the heavy lifting. For example, tech, healthcare, consumer goods, finance and resources all behave differently over time.
Across countries
Australia makes up a pretty small slice of the global share market. By investing internationally, you’re not putting all your faith in one economy. Different countries grow at different rates and respond differently to global events, which can help balance things out.
Across asset types
Shares are just one piece of the puzzle. Many people also diversify across things like property, cash, bonds or super. The goal is to build a mix that works together, rather than relying on one single asset to do everything.
Does diversification guarantee you won’t lose money?
Short answer: no.
Diversification doesn’t mean your investments will only ever go up, and anyone who promises that is lying. What it does mean is that you’re less exposed to one single risk blowing everything up.
It’s about playing the long game and building something that can handle bumps along the way.
Diversification is one of those boring sounding concepts that actually does a lot of the heavy lifting behind the scenes. You don’t need to chase the next hot stock or try to pick winners. Spreading your money thoughtfully across different investments can help you grow your wealth in a way that’s more steady, more resilient and way less stressful.
I hope this helps!
***Please remember our blogs aren’t intended as financial advice - they’re intended only as a starting point to give you a little extra info! For more in-depth advice catered to your personal financial position, please see a certified financial advisor.