Diversification - A Cornerstone of Smart Investing

Choices galore!

The last few weeks have been painful for any equity investor. The trend has been down, down and more down. Although we all knew that the market is headed towards a correction - when it happens it hurts. So how can you still make money when the market is down 20% in less than a year?

The magic word is diversification. Simply put diversification is spreading your investments across an array of products. Where we miss the point is 'array of products'. My definition of diversification used to be the S&P 500. I though diversified across 500 companies was broad enough.

But I was wrong. The US market was a component of the global market and I had no direct exposure to non-US market. I rectified that by investing in developed and emerging markets. Over the last few years my portfolio has benefited from the stupendous growth in the emerging markets.

Recently I have started exploring options to invest in non-cash assets like real estate. Commodities have been another investment class that has seen a huge run-up recently. With the plethora of choices available today via ETFs and other financial products - diversification is a matter of education and intention.

Diversify your portfolio to maximize your investment choices and minimize your risk - that is smart investing.

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