Diversification is the key to reducing investment risk, but you need to be careful: when investing in more than one unit trust fund or other pooled investment, do not inadvertently overlap the underlying investments. The diversification of investments across asset classes such as shares, properties, bonds and cash is a sound strategy, but overlapping or replication of the underlying securities can reduce the impact and the benefits of diversification, dampen returns and add to the cost of your investments, says financial adviser of Discovery Invest, Claire van Wyk. The four biggest balanced or multiasset funds in South Africa share similar objectives and strategies and, when their before-fee performance is compared, their returns are similar over the long run, she says. Van Wyk says she regularly encounters investors with overlapping or replicated investments. "I see investors with three balanced [multiasset] funds from different asset managers, but the underlying stocks are very si...
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