Diversify This

What do we mean by diversification? And how do we achieve it?

Diversification reduces your investment risk spreading your assets around. It has been said that there really only three types of investments: loans, land, and ownership of an enterprise. Everything else is a mixture of these three. Loans are paid back over time, usually with periodic interest; land is what a structure sits on (and produces rent); and ownership entails control over a company’s affairs.

By spreading your wealth between these asset types, you’re less likely to be overwhelmed by any one disaster. An example is the current financial crisis. If you concentrated your investments in equity or property, you’ve had a bumpy ride. If you put some government bonds—loans to the authorities—in your portfolio, that should have smoothed things out a bit.

Having money in different types of assets—asset classes—is the simplest type of diversification. It’s also the most effective at reducing your risk.

Douglas R. Tengdin, CFA
Chief Investment Officer
Hit reply if you have any questions—I read them all!

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By | 2014-09-04T16:58:02+00:00 December 11th, 2008|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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