Diversification – What does it do for a portfolio?

When it comes to investing, utilising the concept of diversification is always the first step in building a sound long term portfolio.

Diversification starts at an asset allocation level and then cascades down to the selection of individual countries,sectors,and specific investment holdings.

In every portfolio there are two major risks, namely that of ‘Market risk’ and ‘Specific risk’ (please note that they are not the only risks).

’Market risk’ is a risk that affects everyone generally in the same way such as war,economic change,or the behavior of human sentiment. An example of this

Interest rates are a topical issue. Whilst their future direction is almost impossible to predict it is valuable to consider the mechanics of how they work and what affect they may have on cash flow.

We are currently in an environment of relatively low interest rates when compared to long term historical trends. Similarly the economy, employment levels, inflation, and many other economic indicators are at historically favourable levels.

With this in mind, the Reserve Bank of Australia (RBA) will use “monetary policy” as an instrument to attempt to maintain

Each quarter the Association of Superannuation Funds of Australia (ASFA) publishes an estimate of annual retirement costs. The June 2015 figures, (the latest data released in August 2015) advised that a single person needs an annual income of $42,861 and a couple, $58,784 per annum just to be “comfortable”.

So what is ‘comfortable’?

According to ASFA, a “comfortable retirement” is one that allows a retiree to “be involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of such things as