How to achieve investment diversification

4 min read 13 Jun 24

Diversification, best known as ‘not having all your eggs in one basket’, can help reduce your investment risk. While it’s easy to talk about making sure your investments are well-diversified, it can be a huge challenge to actually achieve it. So why take on the work yourself? Here we explain why choosing multi-asset funds to do the hard work for you could really pay off.

The value of your investments can go down as well as up so you might not get back the amount you put in.

The diversification challenge

If you‘re serious about growing your money for your future, a truly diversified portfolio makes good investing sense. Investing in a variety of assets that don’t relate to each other or behave in the same way at the same time, can reduce some of your investment risk. If one asset type or specific sector underperforms, others might not, which can help smooth out the ups and downs of your investment over time. But simply investing in a few different types of assets, like equities (shares in a company) or bonds (loans normally issued by a company or government) isn’t necessarily enough.

To achieve successful diversification, you should consider spreading your investments across a range of different markets, asset types, sectors and places around the world. And that’s just to start with. 

Look closely at your choices

To know how well-diversified your investments are, you need to focus on the details of your portfolio. For example, is your money concentrated in just one region like Europe or the US? How much is invested in one particular sector like technology or pharmaceuticals? And how much is invested in large or smaller companies?

Understanding what’s really under the bonnet of your portfolio requires a deep understanding of asset classes (category of assets, such as cash, equities, bonds, property, etc.), growth industries, global economic trends and potential risks. It can be an extremely difficult and stressful task for even the most experienced investors.  

You would need access to the intricacies of each fund or investment you hold to keep on top of how and where your money’s invested. Not to mention closely monitoring them for changes in investment approach. And then there’s global, sector and political risks to think about. 

This is where multi-asset funds can help. Multi-asset funds can hold assets such as bonds, equities, property or cash, whose performance has historically had little connection to each other, in order to achieve diversification. They might also invest in assets in different countries and currencies to reduce the risk of being too exposed to the fortunes of individual economies when they take a turn for the worse.

Why not leave it to the professionals?

To feel confident that your portfolio is truly diversified, it makes sense to leave it to the people with access to research, analysis, market trends and forecasts needed to make the key investment decisions that will help you keep your financial plans on track.

Many multi-asset funds are actively managed by expert fund managers and their mix of holdings can be adjusted to respond to market conditions as they change, or even seeking to pre-empt them. In funds where the balance of assets is not fixed, multi-asset fund managers can act on opportunities where they see them, in certain holdings, countries and currencies, to give your investment the best chance to perform well.

Choosing the right fund for you

While investing in a multi-asset fund might be convenient, it must be right for you and your individual needs. They’re not all the same: they carry different risk and return profiles. Some will expose your money to more risks than others, but also offer greater potential rewards, and vice versa. Some might focus on delivering a regular income for their investors, while others might prioritise growing your money over the long term. 

One of the main attractions of investing in a multi-asset fund is convenience. With one investment, your money is invested in a diversified – and professionally-managed fund.  

The views expressed here should not be taken as a recommendation, advice or forecast. We're unable to give financial advice. If you're unsure about the suitability of your investment, speak to your financial adviser. If you don’t already have one, you can find one on our Get financial advice page. 

By M&G Investments

Related insights