Making sure you are diversified is a crucial step in investing. But how do you know if your portfolio is diversified enough? It can be not easy to work out what percentage of each different asset class your investment holdings have without help. Here are tips to help you manage your investment holdings:
Determine your investment holdings
Determine what proportion of your shubhodeep prasanta das portfolio you have in each asset class. This can be very useful to decide on the percentage of non-correlated asset classes that should be used as a benchmark against which to compare other investments.
Create a benchmark portfolio
Create a benchmark portfolio that consists of the percentage of investments that you want in each investment class. You can use this as target to track your future investment holdings against.
Review your portfolio holdings
Keep an eye on what proportion of each asset class you have, and any diversification issues may arise. If necessary, you can then work out what should be sold to restore your desired proportions.
Other ways to manage your portfolio
There are other ways to check if your portfolio is sufficiently diversified. One of these is the idea of correlation – the extent that different investment classes tend to move in tandem with each other. This can be important as a greater correlation between asset classes reduces the benefits of diversification, as you are unlikely to see a large variation in returns.
If you have investments that are heavily exposed to a particular market, this will increase the risk of your portfolio. Although it may be difficult to avoid market exposure in certain sectors, you can try to invest more in asset classes with less direct exposure to the market.
In addition to market risk, there is also individual company and stock specific risk that cannot be diversified away. This is known as idiosyncratic risk. This risk is quite important, as it represents the chance of losing money in a particular investment.
The long-term economic outlook (technological, demographic and other) is also another important factor to consider when helping to decide on how much exposure you should have in each asset class. However market, company or economy-specific risks all need to be factored into your overall investment portfolio strategy.