The Need for Diversification
All investments involve risk – even the cash deposits in your bank or building society are at risk against inflation! It is important to manage the balance between risk and potential reward and this can be achieved through the choice of different investment holdings:
- Asset allocation is the amount of each investment we allocate to different types of assets such as equities, government gilts, corporate bonds, property and cash deposits.
- Diversification is spreading your investments across a broad mix of assets. By diversifying your portfolio, you can help smooth out market volatility as returns from better performing assets help to offset those that are not performing as well.