Why is wealth diversification important?

Wealth diversification is more than distributing our wealth into different asset classes. It is about reducing our investment risks. Therefore, wealth diversification into several asset classes enables us to preserve our wealth when disaster strikes and helps us to meet our investment objectives.
Based on the “put all your eggs in one basket” idiom, we tend to depend on our success on a single person or plan of action. However, in the world of investment, we should never “put all our eggs in one basket”, where we should not concentrate all efforts and resources in one area, because we can lose everything when disaster strikes.
Investing in a single asset class is insufficient for us to meet our investment objectives. When we expand our investment environment from a single asset class to multiple asset classes, and from local to international markets, the risk of focusing in a single asset is reduced.
However, we should also take into account our risk tolerance. Each asset class has its own reward and risk characteristics; they perform differently in various economic cycles and scenarios. The amount of risk that we take for our investments should correspond with our age groups.
Young investors usually have more time on their side and can tolerate higher risks. Middle-aged investors face greater financial pressures and can tolerate only moderate risks. Senior investors lack stable sources of income and should focus on capital preservation.
When you have determined your risk tolerance and reward expectations, your portfolio can be constructed. You should consider the associated investment risks, what the investment can do for you, what to invest within each asset class, and the right manager for your portfolio.
As markets are subject to fluctuations, it is considered prudent to monitor your portfolios, so that you can maintain the original weightings of your portfolio. Assets that are performing better should be sold to fund the purchase of underperforming assets at low price points, matching the wise saying of “buying low, selling high”. Your needs or changes in your financial goals, depending on your current stage in life, should be evaluated constantly, and your assets should be adjusted accordingly.
There is a wide variety of financial instruments with various advantages and disadvantages that we can invest in:

en_USEnglish
zh_CNChinese en_USEnglish
X