Diversification means spreading your capital across different investments to reduce your overall investment risk. So, if one investment performs poorly over a certain period, other investments may perform better over that same period, reducing the overall losses of your investment portfolio.
Particular investments or asset classes will perform better than others over a specific period depending on a range of factors and influences including;
- Current market conditions
- Currency markets, and
- Interest rates
For example, during current sharemarket volatility and international concerns, your share portfolio may be suffering losses. If you also hold investments in asset classes such as fixed interest or direct property that may be performing better, then these returns will smooth the total returns of your overall investment portfolio.
Diversification can also be made within an asset class, such as investing across sectors within the Australian Share market, as one sector may outperform other market sectors in this asset class.
Therefore the benefits of diversification allow you to achieve smoother more consistent returns over the medium to longer term.
Diversification of your investment portfolio means spreading the risk by investing;
- Across different asset classes
- Within asset classes
- Across different fund managers
- Into different investment structures
Always review your Trust Deed to determine that your chosen investment(s) is one which your Trust Deed allows the trustees to invest in. The Trustees must also implement an appropriate Investment Strategy for the fund taking into account the investments, returns, risk, members and diversification of the superannuation fund.
IPS Superannuation Pty Ltd
