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Diversification – What is it?

Diversification, let’s talk about it!

🔊 ‘We were not taught about investing when growing up.’

This sentence has been uttered multiple times by attendees during our monthly Ndovu Academy webinars.

A quick internal poll on this issue produced the following results:

Did you learn about investing when growing up?

However, when we changed the question to “are you familiar with the proverb that says, ‘don’t put all your eggs in one basket?’”, we got the following results:

Familiarity-with-proverb

OK…Aaah…So, how is this relevant to diversification?

This common proverb is arguably one of the most powerful lessons in investing. It essentially means that one should not put all resources in one area. In investing terminology, this is referred to as diversification.

Go on, tell me more….

Diversification ensures that an investor reduces the risk of potentially losing their money in case an unforeseen event comes to pass.

Investments can be diversified (placed in different baskets) in a number of ways:

  • By asset class (bonds, shares, ETFs)
  • Sector (technology, sports, financial services)
  • Geography (Kenya, USA, China)
  • Currency (Kenya Shilling, US Dollar, Yen)

Over the following weeks, we shall describe each type of diversification strategy on the Ndovu Academy.

How do you currently reduce risk in your own investments? We are keen to hear from you. Drop us a comment below.

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