The key thinking behind this diversification is that a portfolio of different kinds of investments will on average, yield higher returns and pose lower risk than any individual investment found within that portfolio. Basically, diversification strives to smooth out unsystematic risk (risk that effects a very small number of assets) events in a portfolio so that the positive performance of some investments will neutralise the negative performance of others.
Our typical recommendations offer numerous levels of diversification, through exposure to each of the five main assets classes, shares from various global economic regions, and shares from numerous sectors of the market within those regions. For larger sums assured, we will aim to diversify among the major providers in the Irish Market.
Another important factor we take into consideration when recommending an investment portfolio, is the area of ‘correlation’ which is a statistical measure of how two securities move in relation to each other. In the ideal portfolio, we combine both diversification techniques coupled with assets of low correlation, again attempting to provide some protection to part of your portfolio during volatile times in the market.