Why should I diversify my Portfolio?

The reduction of risk is the key reason behind the need to diversify your Investment exposure.

Diversifying a Portfolio is necessary to ensure that the volatility that is ever-present in asset class performance is accounted for and mitigated as much as possible. It is also a means to maximising the probability of positive returns while minimising the risk of permanent loss of capital.

The key idea with diversification is to to have asset classes that not fully correlated with each other so that in the event of a market downturn, not all assets suffer to the same extent.

Ways to diversify at a high level include splitting a portfolio into different asset classes, geographies, sectors and managers. At a more granular level, each asset class can be diversified further e.g. Equities can have different investment styles e.g. Active v Passive, Growth v Value etc.