Importance Of Diversification Balanced Investing

For an individual investor, knowing how to allocate our investments across different assets like; local equities, global equities, local and global bonds, credit, property, cash, and even hedge funds is an important yet potentially intimidating task. Good investment planning includes the diversification of your portfolio, by combining different assets to reduce risk. This safeguards our investments because the returns of different asset classes vary year on year. What this essentially means for an investor is that instead of investing in a single company share, unit trust/fund, industry, or sector, we should spread our exposure across a number of these. No one can be certain of future investment returns. Therefore, the best way to combat this uncertainty is to implement a wise investment spread across asset classes.

The key to implementing successful portfolio diversification is not simply selecting different assets, but rather holding assets that behave differently from one another. This is known as correlation. Correlation will carefully examine the relationship between return movements among two or more assets. Watch a short explanation video on correlation.

In global and South African financial markets, the importance of diversification has been highlighted for us through recently experienced volatility. Diversification of your assets is a vital role in investment success and consequently, allows us the ability to meet our investment goals. By doing this, if a particular sector, industry, or company investment takes a downturn, other investments inside your portfolio could outperform or lighten the load of the loss.

What is volatility?

Different asset classes hold varying levels of risk. Growth or Risk Assets, like shares and property, prove to outperform other asset classes in the long run, but they hold greater risk. This means that they typically need more time to recover from potential dips experienced in the shorter term. When considering the asset classes which we would like to hold as an investor, our duration of investing is extremely important. In other words, asset classes, time, and investment return are directly linked. If we wish to achieve a specific return goal, we need to not only invest in the correct assets but also stay invested for the appropriate timeline in order to achieve it.

Research indicates that over time, 90% of investment return is derived from the appropriate selection of asset allocation. This indicates that for individual investors greater importance should be placed on selecting correct exposure to asset classes, rather than picking individual shares and securities. For an individual investor, it can become a dauntingly large topic to unpack, understand and implement into our investment portfolios. When looking at the vast array of options, we may ask ‘where does one start?’.

Fortunately, this is not something that investors need to worry about because our fund managers are available to do that job in excellence for them. Fairtree Multi-Asset Funds are designed strategically to combine different asset classes on behalf of individual investors. Bespoke or Tailored portfolios are also available. This ensures that the appropriate level of diversification is applied to meet an investor’s specific goal.

Investors can set their goals today, by engaging with our Investment Solution Filter and consultants to find something to meet their needs.

– Cephas Dube & Kheara Lugg

 

Article Credits

https://www.prudential.co.za/insights/articlesreleases/diversification-get-the-balance-right/

https://www.netto.co.za/asset-allocation-plan

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Grethe Fourie

Business Development Manager

Grethe joined Fairtree in 2025 as a Business Development Manager in the Distribution team. She focuses on cultivating strong, long-term relationships with financial advisers and identifying opportunities for meaningful growth. Prior to joining Fairtree, Grethe spent eight years at PPS, where she held several leadership roles, including Regional Sales Manager, Regional Specialist Support Manager, and ultimately National Manager of PPS Wealth Advisory. In her most recent role, she led the Wealth Advisory team nationally, overseeing strategy, operations, reporting, and key stakeholder relationships. She also served as a Key Individual on the FSP licence and chaired the Best Practice Committee. Earlier in her career, she worked as a financial adviser for seven years. She is passionate about empowering women in finance and previously led the Women in Finance initiative at PPS. Grethe holds a Postgraduate Diploma in Financial Planning from Stellenbosch University and is a Certified Financial Planner® professional.

Stephan Venter

Investment Specialist

Stephan joined Fairtree in 2025 as an investment specialist in the Distribution team. He began his career at Deloitte in 2006 as an accountant. He then joined Discovery Invest as an Investment Specialist, before moving to Sanlam Investments, where he spent nine years as a portfolio manager. He holds a Bachelor of Commerce degree in Accounting from the University of Pretoria, an Honours degree and CTA in Accounting from the University of South Africa, and an Honours degree in Financial Analysis and Portfolio Management from the University of Cape Town.

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Get in touch with our experienced hedge fund team to navigate your investments. Have a question? We’re here to help.