Diversification explained

Hold investments:

In different assets, sectors and regions

With different risk exposures

That tend to move in different directions.

To protect your portfolio from:

A sudden drop in the value of a single investment, or group of related investments

The disproportionate effect of a poorly performing investment

Unpredictable events in a sector or region.

So a weak returning investment shouldn’t affect your portfolio’s overall performance too much as your stronger returning investments will ideally make up for it. Of course, even well-diversified portfolios are at risk from market movements and you could still lose money.

All investments can fall as well as rise in value, and the value of international investments may also be affected by currency fluctuations. But you can try to achieve more balanced returns – both gains and losses - by diversifying your portfolio.

Example portfolios

View the accessible version of the example portfolios

Shortcut to diversification

Funds and Exchange Traded Funds (ETFs) can provide the quickest shortcut to a diversified portfolio.

They make it easy for investors to build a diversified portfolio by reducing the volatility and potential gains and losses associated with holding individual shares.

A typical fund may hold perhaps 30 or 40 shares from different sectors and geographies. While a typical ETF replicates everything that appears in the index it tracks.

However, as many funds and ETFs tend to focus on a single country or sector, a well diversified portfolio might include a number of different funds or ETFs to provide asset class, regional, and sector diversification.

The sectors mentioned here are not a recommendation to invest. They are for example purposes only.