The benefits of diversification in your investment portfolio
Portfolio diversification is one of the best tools to reduce risk while keeping the expected returns high, here are some of its benefits:
- Reduce the impact of market volatilityDiversifying between different assets/sectors/markets hedges the investment and helps mitigate the impact of each market on capital returns.
- Increase the probability of steady cash flowsWhen one asset isn’t performing according to the business plan other assets “cover” for it when the quarterly distributions are due.
- Helps in keeping your capital safeWhen you invest in one property there is always some risk involved, diversification makes sure that even if one property is bad you still won’t lose all your invested equity.
- Opens up opportunities for more profitsIf your investment is spread over more deals there is a better chance of one of them outperforming the business plan and netting you higher returns.