When thinking about investment diversification, one of the most important things to keep in mind is risk mitigation. It’s true that diversifying protects your investments from the downside but it is also used to increase the likelihood of participating on the upside.
So how do portfolio managers of equity mutual funds use diversification? One tool is sector diversification. A good example of this can been seen by looking at any equity or balanced fund within your CH portfolio. All of these managers invest in multiple industry sectors.
How your advisor at CH Financial hedges risk in your portfolio is through asset class diversification, for example equities, fixed income, commodities, options and real estate. We use many different asset classes in our portfolio construction based on the client’s risk aversion, asset class exposure, financial lifecycle, etc. The piece we are sharing today is from our partners IA Clarington and it briefly touches on these two ways your portfolio managers and your advisors are employing diversification for your investments.