Diversifying your Investments

There is an old adage “don’t put all your eggs in one basket”. It applies very well to the field of Investments. Diversification is one of the most important elements of successful investing. It is a very comprehensive term and is possible in various ways. It involves spreading your investments across many different asset classes. The right diversification strategy depends on factors such as how much wealth you have, your age range, your risk profile and many other factors. The following are the ways through which we can achieve diversification in our Investments:

1. Identify various areas for Investments. For example Equity shares, Debentures, Govt. securities, Bonds, Mutual funds, fixed deposits, Insurance products etc.

2. Identify your Risk appetite. The more Risk you are willing to take, the more will be your exposure towrads equity investments. If you are in the age range of 25-30, it is recommended that you take higher exposure to equities.

3. Follow a disciplined path for investing your money in the stock markets. Don’t invest heavily in a single stock. Keep your investment spread in stocks of different sectors, putting more weightage on the sector that is currently performing.

4. Instead of investing your whole money in one shot, invest at different intervals to gain the cost averaging.

5. Set an exit target for each stock and exit when that target is reached. Don’t be greedy. The realisation from the exit stock should be invested keeping in mind your investment in different sectors.

6. If you are a beginner and do not have much capital and knowledge to invest, choose the IPO mode.

7. Give time to your Investments. Keep track of the happenings in the stock market in general and your stocks in particular. Churn your portfolio if you feel you don’t have the right mix. Avoid excessive churning.

For more on Diversification Strategy…keep visiting this blog. This blog is dedicated to make you a successful investor capable of taking an informed and rational decision relating to your investments rather than simply relying on rumours.

Happy Investing!

2 comments:

Jonathan Anchen said...

This makes a lot of sense especially the rupee averaging thought. SIP's in mutual funds seem a good example of this.

Prashant Shetty said...

For point 6, I would rather suggest somebody without knowledge should invest in Equity Mutual Funds. Choosing / valuing the right IPO is a challenge too....