In our Guide to Investment Diversification, we
consider why diversification is an important
part of investing. In practical terms,
diversification is holding investments which will
react differently to the same market or economic
event. Generally speaking, there are four broad
asset classes: cash, fixed interest (bonds), property
and shares (equities).
Since performance in any one asset class can be
unpredictable depending on shifts in the market,
investing across several asset classes can provide
greater diversification potential. Therefore, if one
asset class performs favourably, it can potentially
offset another that is performing less favourably,
providing more balance to your portfolio when
market shifts occur.