Spread your money, lower your risks

Experts often talk about the importance of diversification, but what does it mean?

It simply means 'Do not put all your eggs in one basket'.

All investments carry a certain degree of risk. There are different investment types and the returns can be unpredictable from one year to the next. By spreading your money across different investment types, you can reduce your overall risk - this is what is known as diversification.

The table below shows that one type of investment can perform well in one year and below average in the next year.

Investors who rely on one particular investment type may be putting their money at a higher risk. A better strategy is to diversify your investments so that any underperformance in one investment type may be offset by outperformance in other investment types.