The summary:

Last week, controversy surrounded Volkswagen, as it was revealed that the German automobile manufacturer has cheated on emissions testing for their cars. They have defrauded customers, broken regulators’ rules in a big way, and will face suitably big fines as a result.

What effect has this had on the share price?

Since the news was revealed, Volkswagen lost around 1/3^rd of their market value.

This story gives us a timely reminder of why diversification is key, and the benefits of buying into ETFs.

Imagine your portfolio was made up of 100% VW shares. Last week you lost ~33% of portfolio value.

Now imagine if you had some diversified to 50% VW shares. You’ve just lost ~16.5%. This assumes that nothing else in your portfolio loses value.

Now if you had diversified a lot more (maybe using an ETF), to just 1% VW shares. You only lost ~0.33%. Again this assumes that none of the other shares that compose the ETF loses (or gains) value.

It’s a simple example, but it shows the dangers of exposing yourself too much to any one stock. These scandals specific to one company do happen, and companies lose big chunks of value regularly. By using ETFs you can give yourself a smaller exposure to a large number of companies, eliminating the risk that one bad holding will harm your hard earned savings.

Raiz uses 7 different ETFs to construct our portfolios for you, read more on ETFs here, and sign up to Raiz using the link below.

https://www.Raizinvest.com.au