Three Reasons Why Diversifying Your Portfolio Is Good

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Diversifying Portfolio

Diversifying means to invest in different securities (stocks, bonds, ETFs, etc.) across assets in an effort to reduce risk on a portfolio’s performance.

Don’t put all your eggs in one basket is a saying most are quite familiar with. However, not everyone knows the importance of this. Investing in various assets can safeguard against major losses and can help protect your portfolio by hedging and capital appreciation.

While there are numerous ways to diversify your portfolio, here are three ways to do so:

Investing across sectors

Investors buy into specific sectors to mitigate volatility for capital preservation or for higher returns. The latter appeals to the more aggressive type investor. Sectors such as the:

  • Financial (Banks, Investment Firms, Loan Institutions, etc.)
  • Industrial/Manufacturing
  • Healthcare
  • Technology
  • Energy

These are the most popular and lucrative sectors an investor can and should invest in.

Investing in different Countries

Look for countries that have a strong economy, as this will affect the overall performance of companies. Just recently, the Bajan economy crashed and not long after bonds followed suit. This was as a result of the vast decline in tourism of which was the main revenue generating factor for the country. These factors should be considered when deciding on an investment.

In another instant, news of Canada legalizing cannabis (marijuana) has caused many investors to hold on to a cannabis stock on the Toronto Stock Exchange (TSE) instead of other stock exchanges as they expect the stocks in that specific country to reach the highest levels. Evolve Marijuana ETF (TSE: SEED), a Canadian incorporated Exchange-Traded Fund and Canopy Growth Corp. (TSE: WEED), one of Canada’s largest producers of medical marijuana, are both recommendations from SSL.

Investing in Stocks/Bonds

Beware of over-diversification, yes that is a thing! It is unreasonable to track 100 securities from various sectors, countries and markets. It’s best to pick a few good ones to monitor effectively and maximize your returns. Having $1,000 across 5 stocks increases your chances of capital gains. Albeit, if you had $1,000 spread across 10 different stocks, your chances of profiting would be highly reduced once the trade fees and other fees have been included.


If you liked this article and want to read other great stories, try our Archives. Also if you are new to investing you can try our Investment Basics Blog.

If you want to start investing with SSL but don’t have the time to monitor the market or to conduct the trades yourself then you can choose one of SSL’s managed Financial Planning products. We offer a variety of products for every type of investor and if you are interested in managing online trades yourself and having complete control over your investment portfolio then you can try SSL’s Brokerage account.

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