The Money Guide: Investment (part 3)
Cut the risk: how to diversify your investments
A well-diversified portfolio will help you make the most of your investments
Stories abound about a great-uncle who bought shares in a single investment, forgot about it and died before he could find out he was a multimillionaire as a result of his single punt. When the single punt makes money – as, say, a punt on Microsoft when it first launched has now done wonders for its initial investors – it appears to be a smart move. When investors first bought their shares, however, they took a huge risk. The problem with identifying the next big investment is that is there is no crystal ball to predict the future. History is full of examples of what people mistakenly believed would be the next big thing. The reason you invest is to generate returns, and there is always an element of risk, but you can mitigate your risk by diversifying your investments. Three ways to diversify your investments 1. Spread your risk If you invested all your money in the shares of a single company, you could lose almost all your money. Similarly, if you invested in a single bond and the...