Diversification is the practice of spreading money across a number of different investments in different industries and locations.
Stock markets can sometimes be a bit unpredictable. But investors can try and protect themselves from sudden changes in the market through diversification.
So, here’s the idea. By putting all our eggs in one basket we are overexposing ourselves to risk. But if we spread this across a number of investments, this offsets the risk of one of our investments not doing so well. Get it?
Ok, here’s an example. If all your money is in Widgets PLC and this goes down by 15%, then all your money goes down by 15%. But, if you diversify your portfolio as we do at tickr, you are invested into thousands of companies. So if Widgets PLC share price does fall and the rest remain unchanged, then this will have a minimal effect on your investments.
Portfolios, or as we call them ‘themes’, are spread across a number of different investment types: stocks, bonds, countries and industry. Below we go into a little more detail:
- Stocks - these are shares or equity in companies that are on the stock market
- Bonds - A bond is a loan to a company or government that pays back a fixed rate of return. At tickr, we have government bonds and green bonds.
- Investments made in different countries across different continents
- Diverse industries - Investments made in different types of businesses. For example, we invest in companies that are trying to solve Climate change. Within this theme, we invest in companies that produce solar energy, hydropower and clean water.
Creating a well-diversified portfolio can be a bit of a challenge and very time-consuming. At tickr, we design the themes so they are well-diversified so you don’t have to.
Please bear in mind that with any investment your capital is at risk.