Investment Success Through Diversification – What to Consider

It’s one of the most common mistakes an investor can make – placing too much capital into a specific asset class, only to watch it wilt away when that sector takes a hit. Even those that think they are protecting themselves by investing in similar asset classes, but within a different economic or geographical location, are at risk, as global occurrences are now affecting multiple markets at once. The world’s economies are more connected now than ever before.

With global markets so intricately connected, it’s crucial for investors to create true diversification within their portfolios to protect themselves from a dramatic downturn. It’s important to understand that uncertainty in the United States may also create uncertainty in Asia, the Middle East is affected by economic issues in Russia and the world is impacted by a downturn in Europe. The list goes on. Without true diversification, you put yourself at risk.

The best way to diversify your portfolio is to seek out an investment that utilizes multiple asset classes. Doing so allows you to allocate your capital into different classes that are unlikely to be negatively impacted at the same time, and hedges your investments against each other in a way that protects you from catastrophic loss.

For example, a fund with Delta asset classes such as commercial real estate, residential real estate, sports/entertainment, environmental interests, emerging markets, and technology would provide an optimal balance of asset classes that allows your money to grow in one class even if a separate class has a downward spike.

There are also Alpha opportunities that can be quite fruitful within a diversified portfolio. Forex trading, for example, can earn a 20-30% return on a monthly basis. It’s not too good to be true. There is also significant value in certain geographic regions, like Pakistan, where the $54B Chinese-Pakistan Economic Corridor is under construction and poised to bring significant economic value to the region, including $11B in infrastructure projects and $33B in energy projects.

We have been taught throughout life to stay within our boundaries and only do things that society describes as comfortable. However, the truly great investors are the ones that can step outside of that box and diversify their investments, protecting themselves while also taking advantage of opportunities that others shy away from.