Diversification plays a key role in long term investing. Spreading your money so you have a little in a broad number of investments, not a lot in one, can strengthen long term returns and minimise losses.
The latest investor study by the Australian Securities Exchange (ASX) found 40 per cent of investors admit they don’t have a diversified portfolio. Almost one in two investors think their portfolio is diverse, yet hold, on average, less than three different investment products.
As a guide, a recent ASX/Russell report found residential property topped the league table of returns for mainstream investments over the last 10 years, averaging gains of 8.1pc annually. Over the same period, global bonds (hedged) and Australian bonds were the next best performing investments with average annual returns of 7.4pc and 6.1pc respectively.
Aussie shares didn’t even make the top four, earning an average of 4.3pc annually over the past decade (though to be fair, this period includes the global downturn when sharemarkets tanked). Cash delivered woeful returns of just 2.8pc annually over the 10-year period.
Investments like bonds, infrastructure (which incidentally returned 13.3pc globally over the last year), or international shares (10.6pc) can be good additions to a portfolio.
These types of investments can be difficult to access as an individual investor, and a managed investment fund – either listed or unlisted, offers an easy way to expand your portfolio into new areas and reap the rewards of diversification.