2025 is set to be a year full of change mainly due to the leaps artificial intelligence is taking and the impact it will have on society. Less than a month in, we’ve already started seeing signs of how disruptive 2025 will be with Chinese AI firm DeepSeek releasing its AI model that shook up Silicon Valley. In just one day Nvidia stocks dropped by 17% and the United States stock market lost 1 trillion dollars! Insane right? This event emphasizes the importance of diversification for investors because with every opportunity comes risk. In this article, we will break down how a wise investor would have weathered this turbulent week in Silicon Valley.
ETF'S & Portfolio Diversification
Think of an Exchange Traded Fund (ETF) like a basket of fruits. Instead of buying just one fruit (a single stock), you’re buying a whole basket with different kinds of apples, oranges, and bananas (various stocks, bonds, or assets). This way, if one fruit goes bad, you still have plenty of others to enjoy. ETFs work the same way, they spread your money across many assets, reducing risk while still allowing for growth. A good example is the iShares Core S&P 500 ETF, which invests in companies in the U.S., like Apple, Microsoft, Amazon, and Nvidia. By investing in this ETF, you're essentially buying a small piece of all these major companies at once, rather than picking individual stocks. This diversification helps balance risks if one company struggles, others in the fund can help offset the losses.
How Are ETFs a Diversification Strategy?
Now that you understand what an ETF can do for you as an investor, you need to understand how it factors into diversification. Everyone ought to diversify when it comes to investing but how do you diversify? What is your diversification strategy? How will you ensure you have your hands in multiple pots? As I mentioned an ETF is like a basket meaning you can hold different types of assets and spread your risk. Investing in ETFs in itself is considered a diversification strategy because the very essence of an exchange-traded fund as a financial instrument is diversification; it holds more than one type of asset.
Surviving DeepSeeks Disruption with ETFs.
In DeepSeek's case, if you invested in the Nvidia fund on the Ndovu app the impact of DeepSeek’s disruption would have left a dent in your portfolio. On the other hand, if you invested in the iShares Core S&P 500 ETF better known as the Blue chip fund on the Ndovu app the hit wouldn't be so bad. On the same day, Nvidia stocks dropped by 17% the iShares Core S&P 500 ETF dropped by approximately 1.47%. That’s the power of diversification in action. While Nvidia's steep drop would have significantly hurt an investor who put all their money into the Nvidia fund, those who spread their investment across multiple companies using the iShares Core S&P 500 ETF (Blue Chip Fund) on the Ndovu app would have seen a much smaller decline.
Conclusion
Every investment carries risk, but smart investors know how to manage risk and that's what sets them apart. As we’ve seen with DeepSeek’s disruption, putting all your money into one stock can be risky, while using diversification strategies like ETFs can help cushion the blow. By spreading investments across multiple assets, you reduce exposure to extreme market swings. Whether it's through a broad ETF like the iShares Core S&P 500 or other diversification options, having a well-diversified portfolio is key to long-term financial stability. Fortunately for you, Ndovu has an array of ETFs on the Ndovu app you can invest in with the tap of a button and implement your first diversification strategies.
Disclosure:
Ndovu is a regulated Robo-advisory platform operated by Ndovu Wealth Limited (‘NWL’). NWL is a Fund Manager licensed by the Capital Markets Authority (Kenya).
The information provided on this platform and the products and services offered are intended solely for persons in regions and jurisdictions where such distribution and utilization are in accordance with local laws and regulations. Ndovu does not promote its services in regions where it lacks the necessary licenses; It is exclusively available to persons residing in countries where it holds a valid license or has regulated partners. Ndovu does not extend its services to citizens of the United States, Canada, Japan, and other restricted territories.
Disclaimer:
All ETF products are subject to risk, including country/regional, liquidity, and currency risks. Market prices of securities within the ETF may rise and fall, sometimes rapidly and unpredictably.
While ETFs provide diversification through exposure to a basket of securities, they do not eliminate the risk of loss. Diversification does not ensure a profit or protect against a loss. These are non-cis products and are registered by the SEC.
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