Investment portfolio diversification – how to make your money work hard for you
By Neil Scaife, Marketing Director at Huddle Capital
Having a clear investment strategy is key when planning how to make your money work hard for you. At the heart of such a strategy is adopting the right approach to portfolio diversification – making the right decisions about where you invest can protect you from market dips but also enhance your potential for substantial capital gains. Ensuring you have a sufficiently broad investment portfolio in terms of asset mix is critical and therefore, when considering portfolio diversification, you should begin by reviewing the current state of your assets and your tolerance of risk.
Risk reduction with diversification
Whilst portfolio diversification does not offer sure-fire protection of your money, it can maintain the control you have over your capital over time. Every investment you make has a latent degree of risk and diversifying your portfolio will help you both to increase the stability of your investments and to decrease your risk of loss in the event that a single asset class/type experiences a downturn in value.
How to spread your assets
They say don’t put all your eggs in one basket – nowhere is this logic better applied than in the world of investing. Spreading your money across different investment opportunities is key as each will have a different level of risk and concomitant potential return. Maintaining an asset mix that encompasses as many different classes as possible will help create a stable portfolio that has reduced volatility and high potential for growth in value over time.
| Asset Class | Investment example |
| Cash | Savings, current account balances, Cash ISAs, savings or premium bonds |
| Bonds | Government bonds, overseas bonds, corporate bonds |
| Shares | Shares can be held directly or through an investment fund |
| Property | Residential, commercial, buy-to-let, or property companies |
| Peer-to-peer lending | Start-ups, SMEs, property, developers |
| Alternative investment | Art, antiques, wine, gold, jewellery, cars |
An alternative to consider
Peer-to-peer lending is a match made in heaven between an entity in need of finance (having typically been starved of this finance by traditional lenders) and an investor wanting more from their money in what has proved to be a record period of low interest rates. A pioneer in the peer-to-peer lending world, Huddle Capital acts as the intermediary or ‘platform’ between investors and borrowers.
For investors wanting to keep up with the latest in new investment opportunities to grow their money, Huddle Capital providers an innovative lending platform that allows investors to diversify their investment portfolio easily. Borrowers are able to secure the capital they need to expand their business, to finance business endeavours or to purchase inventory with the minimum of unnecessary bureaucracy and the consequential delay that bureaucracy imposes. Meanwhile, investors earn market-leading rates of return on their capital.
The benefits of P2P lending
Technology has enabled peer-to-peer lending to become revolutionary in the world of alternative finance. Some other benefits include:
- Invest from anywhere at any time
- Attractive interest rates
- Investors can spread capital across multiple investments
- Investors and borrowers have transparency
- Regular income
- Portfolio diversification
Your appetite for risk
As an investor, you will have a unique personal risk profile. When designing and diversifying a portfolio, the level of risk you are willing to tolerate can be the focus. This means that all future investments can be tailored specifically to suit you.
Many new investors are fixed on generating large returns and often are under the illusion that one great investment will change their financial destiny. However, seasoned investors know that the greatest success will come from focused risk and portfolio analysis over time.
Portfolio reviews
As portfolios mature, taking a look at the performance of your investments will help you make decisions for the future. You may also find that your investment goals or tolerance for risk have changed, meaning you may need to alter some of your investments. For example, some investors change tack if they have a new family or are approaching retirement.
Furthermore, as time goes on, you may cast your eye over a new asset class that appeals to you. Many investors who considered themselves traditionalists are now involved in peer-to-peer lending as the alternative investment world and record low interest rates encourage investors to expand their horizons.
Do I need to diversify?
Some investors feel particularly strongly about a specific asset class: some will favour investing in property solely whereas others will favour stocks and shares. For some investors, this works. However, you might want to consider diversifying your portfolio if:
- you are heavily invested in a single company’s shares, such as your employer
- you have a lot of spare cash that you don’t require access to presently
- all your cash is in a single savings account
Key takeaway
Investors looking to achieve long-term goals will need to create their own ideal equilibrium between risk and reward. Choosing the best investments for you and your level of risk, as well as rebalancing and analysing how your choices are performing, will position you well for the future.
