Read on to explore the benefits of portfolio diversification and why it’s called the “only free lunch in investing”.
Diversifying your investments can strengthen your portfolio
“Home bias” refers to the tendency of investors to favour domestic markets, but it can often lead to a concentrated portfolio and increase your exposure to the volatility of a single region.
Spreading your investments across global markets is an effective way to improve your portfolio’s diversification and reduce your susceptibility to home bias. This strategy helps protect your holdings from regional downturns while also allowing you to benefit from growth in other parts of the world.
Diversifying your investments across asset classes can also offer greater stability and long-term growth potential, and it can even serve as a protection against inflation.
Sector diversification is equally important. The US tech sector has been a strong performer in recent years. However, in January, the emergence of DeepSeek caused a market stir.
While the market has since stabilised, investors overexposed to US tech would have likely felt the impact more severely than those with a diversified portfolio.
A financial planner can help you build a well-balanced portfolio.
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Perennial Wealth are Independent Financial Advisers who specialise in retirement planning and estate planning. If you would like a review of your pensions and investments and whether you are on track to achieve your financial goals, please contact them for a free consultation.
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