This Holi, Learn how to Diversify your investments
India is a known for its culture of Unity in Diversity and so does its festivals. One such festival is Holi which comes around the month of March every year. Holi is known for the victory of good over evil, a festival to forgive others for their misdeeds and forget the bitter memories of past and move-on in life. During Holi, Indians play with colours – throwing colourful waters and raw colours on each other, with the emotion of “Bura na maano, holi hai”
Today, let us look at the festival of Holi from an investment perspective. Now, many of us will think, what do the festival of Holi and the practice of investing have in common?
Here’s the catch. Holi teaches us the application of one of the most important principles of investing – Diversification.
Diversification means to differentiate. Just as people play Holi with different colours, which make the environment more vibrant and joyful, it is important for each and every investor to differentiate or to allocate the available investment corpus across various asset-classes that suit his/her risk-profile and financial goals.
Diversification helps an investor, get the best returns from various asset classes suitable to him/her and simultaneously reduces the risk of concentration by anyone or couple of asset class/es. An investor can diversify the investible surplus across asset-classes such as Equity, Bonds, GSecs, Mutual Funds, ETFs, ELSS, Real Estate, Gold, Fixed Deposits etc.
As a result of the application of the principle of Diversification, a dip in the market value of one asset class will not hamper the wealth and returns on investment as it will be compensated by growth in the value of other asset classes.
Even when the investor has major concentration on Equity as an asset class, the principle of diversification helps in investing across the shares of various stocks of sectors suitable to him/her and thus reduces the risk of concentration or loss on investments.
As they say, “Forgive and Forget” is what Holi imbibes, this Holi forget the bad experiences that you might had had with your investments in the past. Gain proper knowledge beforehand with Stock Book App’s Education Videos and Investwise.
Remember, Diversification, gives your portfolio the advantage on the likes of having a full-course meal from starter to desserts customized to your needs as against a typical concentrated equity portfolio.
Happy Investing and Happy Holi!