LONG TERM PROFITS IN A DIVERSIFIED WAY

Posted By: TimoStevens (Wealth Sage, 2009)

Diversification, is a significant lesson every investor should have tatooed on their minds. It implies not keeping all your eggs in one basket. Instead, investors should invest in different securities and assets of differing risk profiles. Whereby regardless of the market environments, some assets will always out-perform the others.

A lesson in diversification, consists of the following;

1. Extend beyond just Equities and Bonds; These are fundamental asset classes, but they depend on a company (or country, in the case of bonds) being a going concern. When one goes bankrupt, both bets are off.

2. Add in Real Assets; These can be Real Estate or Commodities...

Commodities ranges from agriculture, base metals, chemicals, oil
to precious stones, etc.

Real Estate also ranges widely from residential, commercial to
industrial, and are very sensitive to geography.

N/B: Access to real estates can be in the form of unit trusts or even direct exposures via real estate investment trusts (REITs), buying a small plot of oil palm land or investing in properties locally and overseas.

3. High net-worth investors may selectively consider alternatives such as hedge funds, foreign currencies and derivatives. As these may continue to be valuable as risk diversification tools.

4. Take stock of your portfolio regularly; Treat the portfolio like a plant, it takes regular tending, trimming and pruning to ensure that it continues to grow well. A good portfolio should be able to withstand market shocks, but it may need to be reinforced to help it stand better.

"Although a diversification plan could have worked or did not work well in the past it does not mean that it would be relevant or less valuable in the future. I believe in looking backwards to learn the right lessons and then focus on going forward," - Tay Han Chong, VP - UOB's personal financial services division.

Adapted From: Forward and Backward - Tay Han Chong, StarBizWeek.