Based on what risks can be reduced through diversification, it is customary to distinguish the following forms.
Country
The need for country diversification is due to the cyclical nature of economic development. If some countries experience rapid economic growth, then over time it may be replaced by a decline. An idea of the change of leaders every 15 years can be given by funds of shares of the largest American companies (FXUS) and developed markets without the USA (FXDM).
Statistics on changes in investor data package countries' shares in the global market over a wider time period are contained in the Credit Suisse review. The charts presented there characterize the ratio of shares of different countries in the global economy in 1899 (left) and 2021 (right). It is easy to see that the overall picture has changed significantly over the entire period.
Shares of countries in the global economy (1899 and 2021):
Main types of risk diversification
Conclusion: an investor, no matter how hard he tries, is not able to give an accurate forecast, therefore, diversification by country becomes very important.
Instrumental
To reduce risks, it is recommended to invest in various assets: bonds, stocks, options, futures, gold bars, ETFs, etc. Due to diversification by instruments, reliable protection against economic threats is provided. In the conditions of an economic crisis, advanced investors try to invest in real assets, such as precious metals.
Individual types of assets behave differently. So, although the value of shares varies greatly, they can help you earn high income during growth periods, strengthen your financial position, and protect yourself from inflation over a long period of time.
Bonds and other debt instruments provide regular payments, but do not protect against sudden price increases.
Assets that help avoid the negative consequences of inflation at any level of price growth include:
inflation-indexed government bonds (FXTP, FXIP);
real estate;
raw materials or commodities such as gold (FXGD).
Conclusion: when creating a portfolio, it is necessary to combine different asset groups - shares, bonds, exchange goods. In this case, the investor can take advantage of the advantages of each type and insure against most of the risks.
Recommended articles on this topic:
Examples of USP to make yours even cooler
9 Types of Customer Loyalty Programs
KPI for the sales department: how to calculate and implement
Currency
Investments in rubles are not very reliable. However, when buying currency, you also need to be careful, since the risk of devaluation always exists.
The US actively manipulates its national debt in order to meet its obligations on time. Japan's economy is heavily exposed to adverse natural factors, while European countries' problem is mutual contradictions. As a result, they have to resort to additional emission, which leads to a decrease in the real value of the currency.
To increase diversification, it is worth