The main asset classes
- Cash: low risk, low return, keeps its value in dollars but can lose to inflation.
- Fixed interest (bonds): regular income, usually steadier than shares.
- Property: rent plus growth, can be direct or listed.
- Shares: Australian and international; highest expected long-term growth, and the bumpiest ride.
Why spread out
Different assets tend to do well at different times. Holding a mix means one bad performer has less effect on the whole. Spreading across countries, industries and companies helps too. Managed funds and exchange traded funds (ETFs) can give wide diversification in one holding.
Time and risk
Money you need in the next year or two generally shouldn’t ride the share market. Money for 10+ years can usually take more growth risk. That is the thinking behind keeping a cash buffer in the apple tree.
What diversification can’t do
It can’t stop the whole market falling. Past performance is not a reliable indicator of future performance, and no one can promise a return.
Next: investing inside or outside super, or investment advice in Brisbane.
Quick answers
What is diversification?
Spreading money across different investments and asset classes so that one poor performer has less impact on your total.
Sources
General advice warning. This article is general information only and does not take into account your objectives, financial situation or needs. Rules and thresholds change; check the sources above. Past performance is not a reliable indicator of future performance. Consider the relevant PDS and our Financial Services Guide and seek personal advice before acting. FinForce is authorised under Financial Force Pty Ltd AFSL 238337. Shay has been authorised since 18 October 2011.