Investment diversification: how to start?

Investment diversification consists of distributing money across different assets. Check out the article!

Investment diversification is one of the strategies used to minimize risks and increase the chances of obtaining profits. It can be done in several ways, from investing in different asset classes, to even in different countries.

However, before you start diversifying investments , it is important to understand how it works and what its risks are. In addition, of course, to knowing your investor profile and risk tolerance.

In this content, we will cover the main types of investment diversification so that you can build your investment portfolio.

What is investment diversification?

Investment diversification can be considered a risk management technique that helps build a portfolio of different assets.

Investment diversification is a strategy that aims to reduce the risk of a portfolio and involves choosing several of them with different characteristics that are not correlated with each other. It can be achieved by investing in various types of assets , such as shares, public and private bonds, etc.

Furthermore, by investing in just one asset, your portfolio is more subject to market fluctuations. However, when you diversify your investments , you can minimize your portfolio risk .

Why diversify your investments?

Investment diversification can bring a difference to your portfolio and greater returns!

Investment diversification is a common practice and can be recommended for all investors , from beginners to the most experienced, as it reduces the risk of the investor’s portfolio.

Additionally, diversifying investments allows you to invest in several different assets, which can generate greater returns in the long term.

How important is it to diversify investments?

Firstly, we reinforce that investment diversification can contribute to risk management . For example, in a variable income fund we have several companies and sectors, we can protect ourselves against losses of positions individually.

If a company faces financial difficulties, others can compensate for these losses, for example.

If stock prices fall unexpectedly, for example, public or private bonds can offer a degree of protection against these losses, as they are loans made by the investor guaranteed by the Federal Government (public) or by financial institutions and companies (private). ).

Unlike a portfolio concentrated in just a few assets, a diversified portfolio is usually more resistant to market fluctuations .

Advantages of investing

When it comes to investments, diversification is essential. This means you shouldn’t put all your eggs in one basket.

In this sense, there are many advantages to varying your investments. Here are some of the main ones:

Reduces the risk

As seen, one of the main advantages of investment diversification is that it can help reduce the risk of your portfolio, since, by investing in different asset classes, it is possible not to be as exposed to fluctuations in the prices of any of them.

Diversifying investments can not only reduce risk but also allow you to keep your capital intact during market downturns.

Protects against changes in interest rates

Another big advantage of investment diversification is that it can protect against changes in interest rates . When rates rise, this tends to negatively affect government bonds and other types of fixed investments, such as some types of funds and pre-fixed CDBs.

However, when you mix your portfolio with stocks and other volatile assets, these can offset losses in fixed bonds if rates rise.

How to start diversifying investments?

To work on investment diversification, it is important to know the types of assets, in addition to your own investor profile.

As you can see, investment diversification is an important strategy for any investor, as it is possible to reduce the risk of your investments.

However, diversifying your portfolio can seem like a challenge, especially if you’re just starting out.

Therefore, We brought some tips to help you achieve a diversified portfolio :

Knowing your wallet

There are several types of investments , each with its own risks and returns. Stocks, for example, represent a stake in a company and tend to generate high returns, but they can also be very risky.

Public and private bonds can be types of investment that are usually safer than shares , as they represent a loan that you make to a government or a company. These assets earn interest and may be less risky.

In practice, you will find a series of financial products available on the market. Therefore, it is essential to choose investments that meet your financial needs and objectives.

Understanding your profile and goals

There are different investor profiles, each with different objectives and goals. To know your profile, it is important to analyze your investment objective .

If your goal is to save money for retirement, for example, you can look for investments that offer a good return in the long term.

In addition to the objective, another important factor in choosing an investor profile is your level of risk tolerance. More conservative investors may prefer investments with lower risk, while more daring ones tend to be more willing to take risks in search of higher returns.

Applying diversification

There are some ways you can apply investment diversification. One of them is to make investments in different asset classes . In this context, a diversified portfolio can be achieved by investing in assets such as government bonds, real estate funds, shares, commodities , among others.

It is worth highlighting that each class has its own characteristics and risks , so it is important to choose those that best suit your needs and financial objectives.

Furthermore, another way to diversify investments is to choose different sectors to invest your resources. For example, you can choose sectors such as health, technology or energy.

Therefore, by varying investments in different sectors you can protect your portfolio against market fluctuations.

Finally, also consider the possibility of benefiting from the global economy by investing in different countries . This diversification can reduce global market risk, as different economies tend to develop independently.