Investment Tips: Credit Suisse Global Investment Returns Yearbook 2022 has made this year’s focus theme ‘Diversification’. It has been emphasized in the book that diversification reduces risk. Due to the diversification of the portfolio, investors can get higher returns with less risk.
At this time there is a lot of volatility in the market. Inflation is rising and interest rates are falling. The direct effect of the ever-increasing tension between Russia and Ukraine is being seen on the stock market.
Diversification of Portfolio
Hence, market experts insist on portfolio diversification as the objective of the variety in the portfolio is to reduce the risk. Investment risks can be reduced to a great extent through diversification of portfolio. The main objective of diversification is not to maximize profits but to minimize risks. Diversifying your portfolio does not mean that you need to learn how to trade on all financial markets. This means choosing certain assets due to which the loss can be minimized.
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Many people buy multiple insurance policies, mutual funds or stocks at once. They do this thinking that they are reducing the risk in the portfolio by diversifying into multiple products, but keep in mind that diversification in the portfolio reduces the returns. With this it becomes difficult to track your portfolio in one go. Therefore, to achieve the financial goal, always invest wisely and avoid investing in many places at once.
In the context of international diversification, the report suggests that globalization has increased to the extent that markets move closer together and reduce potential risk aversion.
According to the report, over the past 50 years, global investment has given higher returns than domestic investment in most countries. Hence the Sharpe Ratio has proved to be good returns by reducing the risk of a portfolio.
Tags: investment tips, Mutual funds
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