Build a diversified portfolio

Never put all your eggs in one basket - build a diversified portfolio. An old adage but still very relevant to investing today. Building a diversified portfolio involves investing concurrently in various asset classes. Diversification helps protect your portfolio from excessive valuation swings and provides you with more consistent returns over time.

A classic example would be to combine the bond and equity asset classes in a portfolio. Prices of equity and bond asset classes generally move in opposite directions i.e. when equity markets are down, bond prices usually hold up. The equity asset class is important for long-term capital appreciation, while the bond asset class provides income and stability in a portfolio. In addition to diversifying across asset classes, you should also look to diversify your portfolio geographically.

The matrix below shows that different asset classes and geographic region takes the top performance spot every year, illustrating the importance of holding a diversified portfolio.