Investing is often, and erroneously, seen as some arcane practice requiring indistinct knowledge of a dark art in order to manifest untold riches. The truth is far more banal – and if more were aware of this banal truth, then more would be able to benefit from the unique growth that investing can offer.

It should come as no surprise that three-quarters of UK adults don’t invest their money and that one of the most commonly given reasons for this was a lack of knowledge and understanding about the process. For those that do engage in investing, many more still are stuck on a path of compounding losses, driven by the allure of the ‘quick buck’ or the ‘big win’. The real value in investing is the long game – and the way to make the long game pay is to diversify your portfolio.

Understanding the Basics of Portfolio Diversification

In order to understand what we mean by portfolio diversification, let’s first refresh ourselves on the basics of investing. Investing is a game of risk, where higher risk is often paired with higher reward. It is this that draws many to their first interactions with the stock market, as amateur investors are inspired to place their money in the next Apple or Amazon. Of course, no one can know the next Apple for sure – and so many traders lose money to poorly-researched investments into single businesses.

Rather than chasing the quick buck or the next Apple, the shrewd investor spreads their money over a variety of stocks and assets, many of which offer near-assured – albeit low – returns. This is diversification, and it is powerful because it reduces the risk of one market event affecting your whole portfolio.

How to Diversify Your Portfolio

As an amateur investor with little market experience, it might not be wise to build your own portfolio even with this in mind. Rather, there are many financial products you can avail of – and many financial advisory teams you can look to for counsel and direction. A more involved investor might spread risk as well as investments, allocating part of their investment portfolio to investments which could skyrocket.

A global index fund would be the easiest way to benefit from diversification. Such funds are constantly managed and represent the global markets – hence are immune to all but the most wide-reaching of market events and enable steady growth accordingly.

Common Mistakes to Avoid

In talking about the fundamentals of trading and the importance of diversification, we’ve already covered some of the major ways in which amateur investors make mistakes with their investments. Those who chase risk, put all their eggs in one basket, or invest without properly investigating the viability of the investment are all opening themselves up to significant financial losses. Another common mistake, though, is to start day trading.

Day-trading is the attempt to follow market movements minute-by-minute, and to make marginal gains on the trading of stocks accordingly. For those without decades of experience or years of education, this is tantamount to gambling – and the quickest way to lose the value of your portfolio.

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Lisa Ruiz

Lisa Ruiz is a tech enthusiast and business strategist with a passion for exploring the intersection of innovation and entrepreneurship. With years of experience in the technology and business sectors, she delivers insightful content on emerging trends, digital transformation, and growth strategies. Lisa’s work helps professionals and entrepreneurs navigate the fast-evolving tech landscape to stay ahead of the competition. When she’s not writing, she enjoys networking with industry leaders and discovering the latest advancements in AI and fintech.