We have addressed this in various blogposts already: diversification or spreading of your investments is a crucial point of attention when building your investment portfolio. It allows for a spreading of the risks regarding investments and for a higher yield. Diversification will curb the chance of loss and for this, alternative investments such as diamonds, are suitable.
But what does this mean in practice? How do you ensure your portfolio is sufficiently diversified?
Less risk, more yield
Let’s illustrate the importance of diversification with an example: imagine you only have one share in your portfolio and suddenly, the stock price decreases with 50%. Then you have to wait until the stock price has doubled again before you can recuperate your loss. If, however, you have 100 different shares in your portfolio, the impact of the crashed share on your investment portfolio will be negligible because it’s compensated by a possible increase of other shares. This example shows, too, that you should never invest in only on particular product, however safe it may seem. Investment diamond are thus, ideally, only a part of your investment portfolio.
You do not need a large amount of capital to diversify your portfolio or to consider investing in diamonds. With an index fund based on the most important stock markets you can go a long way already. With this, you can invest in different sectors worldwide, in hundred companies with completely different profiles, through a simple transaction.
A well-diversified investment portfolio includes more than just shares. Diversification means an allocation of your capital to different asset categories (shares, obligations, raw materials, real estate…) over different economic sectors and areas, and at different investment times (per month, per term, per year…). Investments involving a little more risk, however, belong to a well-diversified portfolio. Shares, for example. A more defensive-minded investor can use them to spread the risks regarding his capital and meanwhile increase his yield in the long run. In the raw materials category, diamonds could be a nice addition to your portfolio. The risks regarding this investment are lower compared to shares and obligations and the profitability is practically guaranteed.
Your portfolio ideally incorporates investments that aren’t interconnected. ‘Don’t place all your eggs in the same basket’, that is the essence of what we are trying to say. If you manage your portfolio yourself, you have to be in the know regarding the exact content of your different investment products, in order to detect connections and relationships. In reality, few investors manage to keep this diversification up on their own. This is why investment funds are so attractive: it’s a cost-efficient way of diversifying your investments.
BAUNAT DIAMONDS provides various investment options when investing in diamonds.
For more information and tips, you can read the following articles as well:
- Investing in diamonds for dummies
- Investment diamonds: where to start?
- Five tips for investing in diamonds
Or contact our specialists.