The primary objective of diversification is to protect the investment you have any problem, especially with the current market instability. It can be done through different positions jacks financial assets, such as funds from deposits, bonds or options for the future, among others, but it is also possible to create a basket of different values that allow the declining price of one of them would be unlikely consequences on the rest.
Mitigating losses
The vast majority of financial analysts stresses the importance of diversifying the portfolio in order to mitigate possible losses on investment. This means the distribution in various securities to minimize risks. The diversification of investments can be made in several ways:
Through various financial assets.
By investing in the stock market through a "basket" from different sectors or securities indices.
A diversified investment portfolio contains products of different types and includes stocks, mutual funds and fixed income instruments and equities, such as bonds and certificates of deposit. In this way, you can combine mutual funds, stock markets or ETF, among others, depending on the economic situation.
As you increase the percentage of equity investment, increase the risks and benefits
A formula valid for conservative profiles would take positions in a 80% fixed income and 20% remaining equity. If you want to risk a little more, as is the case for aggressive investors, these percentages could be swapped to reach 70% in equities and 30% fixed income. As you increase the percentage in equities, will increase the risks assume the saver, but also the benefits will rise proportionately.
How to form a stock portfolio
Another variant of diversification comes from taking positions in equities through exchange, both domestic and international markets. This strategy can be carried out if it forms a portfolio that includes equity investment in securities and countries that are not related to each other. Thus, the decline in the price on one of them would have little impact on the rest of the basket. The ideal strategy would be to take positions in sectors with high speculative component and counter with the purchase of other more defensive, which offer greater security.
By diversifying the investment market, the decline in price of a security would have little impact on the rest of the basket
The dilemma arises when applying the percentage corresponding to each value. As is obvious, is determined by the degree of risk you are willing to assume the investor. A model of diversification of capital only through equity would be as follows: 30% in value of the banking sector, 30% in telecom companies, 20% in the pharmaceutical sector and the remaining 20% could be allocated to buy shares of companies from new technologies.
Putting it into practice: pros and cons
While this strategy benefits the small and medium investors in global terms, it should also assess the risks of putting it into practice.
Advantages:
Provides greater security by not having all capital concentrated in one product or value.
Minimizes the risk of losing the capital invested.
Lets take advantage of each product of the banking market: future options, mutual funds, structured deposits, etc..
Disadvantages:
Need some expert advice from financial markets to design the composition of the portfolio of each client.
If any of the values chosen has a good performance, you can reap the benefits in all its intensity.
Minimum capital is required than is necessary for other investment alternatives.