The importance of the diversification of risk in your investments

Equilibrates your portfolio with different assets belonging to sectors and/or geographical areas different.

When invest our savings, the first thing that owe analyze is the risk that are prepared to assume and the profitability that like obtain. Two factors that go always of the hand and whose relationship is directly proportional, that is, when great is the risk level higher can be the profitability and vice versa.

On the basis of it, us can find with different profiles and different assets in which invest. Ones are more conservative and choose the fixed-income (smaller risk and benefits snider), other are more decided and bet for the equities (assume more risk of loss of the investment in looks for of a great payment if the investment goes out good) and, in last place, are the moderates that prefer the diversification of the risk of your investments, what them takes to choose assets of the two previous.

Why must diversify?

The diversification is the best way of reduce the investment risk . The investment in a single type of asset, in a single business field or in a single country, can run away with to lose all our money if the context of any of they goes back to negative. 

From this the importance of diversify our investments, that is, should invest in different assets, in different sectors and/or geographical areas. This us goes to help to reduce remarkably the risk and us goes to allow equilibrate the yield of all our portfolio. This means that if part of our investment products or assets suffered a strong setback, be remaining products or assets which compensate this fall and avoid that lost our money.

How can apply the diversification of risk of our investments?

Once acquaintances your benefits, is good know that options have for expand our range of investment. Can: 

  • Diversify investments for assets, in other words, have a portfolio that combines fixed-income, equities and, also, assets of the money market. An example: if have 5,000€ spared and the invest only in stock of a company, the bankruptcy of this you cause losses substantial. However, if divide your money in several assets (and happens the same casuistry) the gain depend on the profitability of all of them, being able to recover on the one hand what was lost for another. 
  • Diversify investments for sectors, whose stability is based in different business cycles that happen during the year, which not affect all the commercial fields at the same time. This does that choose the investment in several you can help to bear the recession in one of them, to the equilibrate for the bonanza of the rest of them.
  • Diversify investments for geographical areas and not invest in stock of companies of an only country, fact that can be counterproductive if happens a reduction in your national economic forecastings. One of the better ways of take it to cape is bet for several multinationals settled in countries with legal certainty, as Apple.
  • Diversify investments for funds since, much as want cover, not is possible that arrive to all the sectors nor geographical areas of stop interest. With this option is possible expand our radio of stock thanks to the access to the funds of other investment funds that if arrive where we not it do.
Is a certain that the diversification of risk of our investments avoids a certain stress financial, However, before plunge to it, must have clear the risk that are prepared to assume since be the base on the one which take out him the maximum profitability to our portfolio of investments.