In the 2004 documentary Supersize Me, Morgan Spurlock eats food only from McDonalds for a whole month. What was the result? He gained weight (a lot of it), experienced mood swings, and frequent headaches.  

“Like your diet, your share portfolio generally suffers if you just choose one stock and don’t mix it up” 

Now we all love the occasional Macca’s every now and again, but it’s probably safe to say that you should mix it up and maintain a balanced diet. Our body stays healthy that way.

Like your diet, your share portfolio generally suffers if you just choose one stock and don’t mix it up. Choosing different stock types to work together is one of the most important things to keeping your portfolio healthy.  

“By spreading out your investments, you avoid putting your eggs in one basket. If that basket breaks, you can’t have your omelette, that’s a risky situation”

For eating we call it a balanced diet, for investing we call it Diversification. This blog will tell you a little bit about diversification, how it works, and how you can achieve it.

How does diversification work?

Diversification basically means spreading your money across a variety of different investment types. Often these investments perform differently at different stages of the business cycle, or have different correlation with each other.

By spreading out your investments, you avoid putting your eggs in one basket. If that basket breaks, you can’t have your omelette, that’s a risky situation.

For example, take the example of stocks and bonds. During a bad period for the stock market, we tend to see bonds perform better than stocks. If you had a portfolio full of stocks and no bonds at this time, you’ve just missed out on the action. By diversifying you can avoid big shocks to your portfolio.

But it’s not just different asset classes that behave differently. Healthcare stocks will perform differently to Oil stocks, Oil stocks may behave differently to Tech stocks, Foreign Tech stocks may behave differently to Australian ones. There’s many different investment types to diversify.

How can you diversify? 

ETFs are a great start (What is an ETF?).  

“When you invest with Raiz, you diversify” 

With ETFs, you can spread out your investments over hundreds of different stocks. There are ETFs for local stocks, foreign stocks, bonds, and much more. 

When you invest with Raiz, you diversify. Each of the 5 portfolios offered by Raiz are diversified across 5 different ETFs, different countries, and asset classes. 

Our portfolios were designed with diversification in mind, and to give the investor the best expected return for the amount of risk they’re willing to take on. 

So don’t have Macca’s for every meal, and sign-up to invest with Raiz today.