Portfolio diversification = how not to invest pants
The success of the investor stands and falls on the investment strategy.
The success of the investor stands and falls on the investment strategy. It is not enough to collect tips and send money to the first “profitable” fund. Or put on a friend's recommendation and give it a ride on a wave of Tesla stock. Try gambling with cryptocurrencies or with fast trades on the stock exchange. If you plan to invest for the long term, weather future financial crises and avoid big losses, you should definitely be interested portfolio diversification.
The word diversification comes from the words diversus and making, thus variously and do. In common language, imagine under these words a business or investment strategy that seeks to reduce risks by not relying on one product. On the contrary, it assumes the distribution of risks and concentrates on different business or investment areas. In investment practice, it looks like you invest money in different assets, but also to different parts of the world, you choose different fields and do not forget to invest on multiple different platforms or with different managers.
You say to yourself, isn't that just unnecessary extra worry? Having to think about more investments, controlling multiple industries, companies, markets or platforms, that sounds like a lot of work. But fair portfolio diversification will help you balance the financial crisis or fluctuations in certain sectors. Let's show it with examples:
Investor A By 2019, he had purchased shares of several successful companies, the largest share was represented by companies such as Airbnb, Booking, but also some airlines. He also had several smaller commercial properties in his portfolio.
Investor B He also likes the real estate and travel segment, but he deposited some of the money in a rental housing fund. He took out a mortgage on a small investment apartment, and in his portfolio he also has technology companies and a little of the energy sector represented.
Who do you think is better off now? Quite possibly Investor B, who was thinking of more diversification. Rental housing only boomed locally. Last year, they increased according to data Eurostat rates real estate in the Czech Republic by more than a quarter, which was the most of all countries European Union, with the European average holding at around 10%. Shares of technology companies could then make up for the loss from the tourism segment.
Right, you're telling yourself that neither the pandemic nor the war could have been predicted. But some of them came out as winners, others lost a lot. The key to success is honest diversification. No crisis can be properly predicted. We all just guess, we guess, there is a lot of talk about it, but no one knows the real consequences.
Different types of diversification
Successful investors recommend choosing a portfolio miscellaneous assets. Most often these are stocks or bonds, but you can also come across commodities, investing in currencies or physical assets. Maybe gold or real estate. As we have already shown, it is good to focus on different fields as well. Real estate, travel, technology, energy, finance. Don't just stay with your favorites. Even if you invest in hundreds of companies in one segment, there will be no fair diversification and your portfolio will still be vulnerable.
Another way to diversify is by picking an investment according to geography. Do not necessarily stay only in Prague, the Czech Republic or Europe, and on the contrary, do not invest only in American companies. Crises manifest themselves differently in different markets, and if something is not going well, you can reasonably endure it elsewhere and not lose everything. And in the end, while it's very unlikely that any established platform will end, it can always happen. Don't just leave your investments in one place. It is not worth betting on just one card.
Time diversification or you don't have to be rich in the beginning
We often come across the opinion that until a person has hundreds of thousands, it is not worth starting to invest. The opposite is true. The result of long-term regular investment of smaller amounts is a lower average purchase price. Imagine that you want to invest 50,000 CZK, for example in stocks. When you invest 5,000 CZK each month, sometimes you buy more shares at a lower price. Other times, the same shares will be more expensive, so you can buy less of them. As a result, you usually get to lower average price for the purchase of one share than if you spent 50,000 CZK at once. And or they didn't spend it at all because you're waiting for the best moment to make a purchase that may not come.
Don't overdo it again
Diversification always makes sense. But that doesn't mean you have to have it bought on four platforms, with five managers, and have all kinds of assets in your portfolio. That would make more than one person go crazy. For everyone, the ideal amount is a little different, but the main thing is not to lose track. Having to guard all segments and products is challenging and so you can easily overlook a disadvantageous deal or make some kind of shoe. Think hard about it, choose a sensible strategy and keep your investments under control.
Portfolio diversification on Investown
How does investing in apartments through Investown fit into all this? This is a great opportunity to Diversify your portfolio using the fastest growing real estate crowdfunding platform in the Czech Republic. You can also diversify the real estate investment portfolio at Investown — just choose from apartments all over the Czech Republic. The minimum valuation ranges from 7% per year, the number of investments has no ceiling (on the contrary, from 10 investments above you become a member of the Premium Club with even higher profits). You can also sell your investment to 10,000 other users at any time.