How to diversify your portfolio

Are you familiar with the expression “don’t put all your eggs in one basket”?

When it comes to investing, that means placing your money in a variety of investments that react differently to the ups and downs of the market. This is how portfolio risk is managed.

There are four main ways of doing this.

The first is to spread your investments among different asset classes: 

• equities

• fixed income securities, such as bonds

• and liquid assets, such as term deposits. 

The second is to hold a number of different securities in each class to minimize the individual risk associated with each one.

The third is to invest in different economic sectors. For example, the financial sector, natural resources, technology, and so on.

Which brings us to the fourth way, which is geographical diversification. This consists of investing in:

• the Canadian market, plus

• the U.S. market, plus

• international markets. 

With geographical diversification, you can kill two birds with one stone, given that some economic sectors are more heavily weighted in one market than another.

How do you achieve this kind of diversification? One simple option is to consider mutual funds*, which can offer a high level of diversification for a minimal investment.

So, to ensure that your eggs are carefully placed in a variety of different baskets, talk to your advisor!

_{* Mutual funds are offered by group savings representatives at SFL Investments, a financial services firm.}