What does diversify mean?
Diversification can be an essential success factor for investors. Because if you put all your eggs in one basket, you are taking a great risk. It is better to spread the risk across several investments – in other words, to diversify. Find out here what makes a portfolio diversified and how you can easily invest in a diversified way.
Easily invest in a diversified way
With investment funds and ETFs, investors can already invest small amounts in a highly diversified manner in different asset classes, sectors and regions. Both investment funds and ETFs pool the capital of many investors and invest it in a wide range of securities, such as equities, bonds or commodities. This spreads risk across many different asset classes, sectors and regions, which typically reduces the impact of losses in individual areas. Even with small amounts, investors can benefit from the professional administration and broad spread offered by these investment vehicles.
Diversification in a balanced portfolio
Diversification in a balanced portfolio
Diversified investing with funds
You can also invest smaller amounts in a diversified way through various types of fund such as equity funds, bond funds and mixed funds. Thematic funds and sustainable funds can offer additional diversification. Actively managed funds aim to outperform the underlying benchmark. The management required for this often leads to higher costs.
Diversified investing with ETFs
ETFs (exchange-traded funds) track an index that includes many different equities or bonds. This allows you to invest in a broad range of companies or bonds in a diversified manner. Since the ETF reflects an index and therefore invests passively, no excess return is possible compared to the benchmark. On the other hand, the costs of these investment products should be lower.
This is why you should diversify
- Minimisation of risk: A diversified portfolio generally reduces risk because losses in one area (investments, sectors and regions) can be offset by profits in another.
- More stable returns: While individual investments can fluctuate greatly, a diversified portfolio generally provides more even performance.
- Take advantage of opportunities: By investing in different sectors and regions in a diversified way, you can benefit from growth prospects in different areas.
