How to build a diversified investment portfolio for maximum returns

DIVERSIFICATION is one of the most talked-about principles in investing, and yet one of the most poorly executed in practice. While almost everyone has heard the advice, “don’t put all your eggs in one basket”, applying it effectively to your own portfolio can be easier said than done.

- WENDY MYERS

At its core, diversification is about reducing risk without sacrificing return. It’s one of the few free lunches in investing, but that doesn’t mean it’s as simple as owning a bit of everything and hoping for the best. It's about owning the right mix, for the right reasons, at the right time.

Decide on your risk appetite first

Before you can diversify, you need to understand your personal risk profile. Are you risk-averse and inclined towards stability? Or are you in a position - due to age or financial circumstances - to stomach more volatility in pursuit of higher returns?

Younger investors, in particular, are well-placed to invest more heavily in equities. They have time on their side to recover from market dips and benefit from long-term compounding. But that doesn't mean blindly investing in every available asset. Diversification should still be thoughtful and deliberate.

Local vs offshore allocation