When it comes to investing don't put all your eggs in one basket

Don’t put all your eggs in one basket
This may be a frequently used cliché but it holds very true when it comes to investing.
If you are involved in the property and construction industry it could be that you are 100% focused on this sector not only in terms of your business but also your investments.
Stuart Stead, Partner and Head of Property and Construction at Cowgills accountancy firm explains why diversification can be important.
Imagine you have a successful construction business which has enabled you to invest in property and also your pension is reliant on the property market. Essentially you are 100% reliant on the property and construction sector for your income, wealth and pension.
Have you considered what the impact of a downturn in the sector?
One of the most effective ways of reducing your risk is to bring variety into your investments or diversify your investments.
A diversified portfolio has a mix of varied assets such as equities (shares in companies), government and corporate bonds (loans to governments or companies), property and cash. Even within these asset classes, investments can be further diversified based on sectors, geographies, and other factors.
The values of different assets can move independently and often for different reasons.
Shares for example move in line with the performance and prospects of companies; bonds are most prominently influenced by interest rates; and property values are influenced by interest rates and are also closely connected to the performance of the domestic economy.
Getting the right asset allocation which is not wholly property focussed could make you a healthy return, whilst protecting yourself against any downturn in the sector.
Achieving your long-term goals requires balancing risk and reward. Choosing the right mix of investments and then periodically rebalancing and monitoring your choices can make a big difference in your outcome.
Diversification does not guarantee returns or eliminate risk. It doesn’t ensure high gains or prevent loss of investments. But, it casts a safety net which reduces your investment risks to a degree and enables you to limit your losses by optimising your returns.
If you need any help or advice then Cowgill Holloway’s Wealth Management team offer an holistic approach to financial planning with the aim of structuring your affairs to ensure that you successfully meet your financial objectives. We advise upon a wide range of financial matters and tailor our advice and service to your own unique personal or corporate needs.  Click here to find out more.
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This article is for general guidance only. It provides an outline, and may not include points which are important to your situation. You should not depend on this blog without taking advice based on the full facts of your case. The information given was correct at the time of publication.