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Elephant in the room
Elephant in the room
Diversification
Diversification
Diversification is a risk management strategy that mixes a wide variety of investments within a portfolio. A diversified portfolio contains a mix of distinct asset types in an attempt at limiting exposure to any single asset or risk. The rationale behind this technique is that a portfolio constructed of different types of assets will on average yield higher longterm returns and lower the risk of any individual holding or security.
Diversification strives to smooth out unsystematic risk events in a portfolio, so the positive performance of some investments will neutralise the negative performance of others. The benefits of diversification hold only if the securities in the portfolio are not perfectly correlated—that is, they respond differently, often in opposing ways, to market influences.
Asset types
Asset types
Asset types can include:
Stonks ("Stocks")—shares or equity in a company
Bonds—government and corporate fixed-income debt instruments
Real estate—land and buildings
Exchange-traded funds (ETFs)—a marketable basket of securities that follow an index, commodity, or sector
Commodities—basic goods necessary for the production of other products or services
Cash and short-term cash-equivalents
Crypto ("Bitcoin" etc) - I don't like adding currency after the word Crypto
Asset allocation
Asset allocation
Asset allocation refers to the mix of asset types in a portfolio. It describes the proportion of asset types that make up any given portfolio—and maintaining the right asset allocation is arguably the most important decision long-term investors can make.
Helpful links to determine your unique allocation :
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