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  • Diversification – why it pays to be smartly spread

    You can’t pick the star players, but you can buy the team. Spreading your investments smartly through diversification gives you options – and it’s completely within your control.

    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

    In a sports team, you wouldn’t pick players who are good at the same thing. It’s great to have a team of fantastic goal-scorers, but if you forget to include a good goalkeeper or strong defenders your shooters’ work might as well be forgotten.

    No one player’s more important than another. By everyone doing what they’re best at, and working with others who do what they’re best at, you have the best chance of winning the game.

    Building a team of investments, which we call a diversified portfolio, is no different.

    This article gives you information to help you build a diversified portfolio, but it isn’t personal advice. If you’re not sure of the best course of action for your circumstances get advice. Our advisory service could help.

    What is diversification?

    Diversification means spreading your money between different types of investment.

    Whether it’s types of companies, types of asset - like shares, bonds, funds and property - different parts of the world, or investment styles, there are lots of ways you can do it.

    What good football teams teach us about investing

    The first thing you’re taught when playing sport: don’t chase the ball, stick to your position.

    Go to any under 10s match and you’ll see 22 players chasing the ball around the pitch. If your investments are all doing the same thing, you’ve probably left an open pitch behind you. That’s where the danger is, so make sure you’ve got the whole pitch covered.

    The star player might be played every minute of every match. Will the team fall apart if they have an off day? Be careful of relying too heavily on one player. Nothing stays good forever.

    If multiple investors are chasing one particular investment, then they’re probably buying it at a price higher than it's worth. Who’s to say it’s not just a short-term trend? And who’s to say that buying it fits in with the rest of your overall plan?

    Not everybody has the same investment goals as you. Decide your goals, stick to your plan, and review it so you stay on track

    Prepare when you can’t predict

    Investing isn’t about picking winners. It’s much less exciting than that.

    Why guess the star players when you can buy the whole team?

    If we could control how investments performed, the world would be a very different place. We can’t – but we can spread our money, to be ready for their unpredictability.


    The purpose of the margin of safety is to render the forecast unnecessary.

    BEN GRAHAM

    And then when your investments do go up and down, provided you’ve spread them smartly, you won’t have to play guessing games or make rash decisions when things happen.

    How to diversify

    • Types of investment, or asset classes – cash, bonds, funds, shares and property are the main ones, and they’ll all have different risk levels. The idea is that they have different drivers of returns – each will perform differently at different times. As your age, goals and risk appetite change, then you’ll probably want to change the amount you have in each asset class.
    • Geography – why stick to one country, when you can have the world? Just like asset classes, different stock markets around the world are driven by different things. And often, the best performing stock market will change from year to year.

    It might feel uncomfortable to put your money into areas which aren’t doing well – but when the tide turns, and it usually does, you’re more likely to be in the right place at the right time.

    Ready to start diversifying?

    Our Investment research team have put together some investment ideas to help you get started with diversifying a portfolio. They are not a personal recommendation to buy.

    You could look for diversification with a fund that includes different investment types across lots of geographies.

    Mixed investment funds can be a good way to start holding a variety of investment types too. They usually blend shares and bonds in different proportions.

    Investing in funds isn’t right for everyone. You should only invest in funds if you have the time and know-how to diversify your portfolio to help reduce risk.

    Before investing it’s important to check the fund’s objectives align with your own, understand the fund’s specific risks and if there’s a gap in your portfolio for that type of investment.

    Remember, investments go up and down in value so you could get back less than you put in.

    Investment ideas

    Legal & General International Index

    • Invests in thousands of companies around the world.
    • Gives access to sectors like technology, financials and healthcare.
    • One of the simplest ways to invest.

    Find out more

    Find out more

    Troy Trojan

    • Made up of a mixture of different investment types.
    • Investments from around the world.
    • Could bring some stability to a more adventurous portfolio.

    Find out more

    Find out more

    Legal & General International Index

    A global tracker fund could offer instant diversification to a long-term investment portfolio.

    Tracker, or index, funds try to track the performance of an index, instead of trying to beat it.

    The Legal & General International Index aims to track the performance of the FTSE World ex UK Index. It’s made up of markets like the US, Japan and Europe, but also includes some higher-risk emerging markets like Korea and Taiwan. The fund can also invest in derivatives, which can increase risk. Because of the size and strength of the US stock market at the moment, American companies make up almost two-thirds of the fund.

    The fund invests in around 2,200 companies, across sectors like technology, financials and healthcare. It mainly focuses on some of the world’s biggest and most established businesses.

    The fund is managed by Legal & General, one of the largest providers of tracker funds, with plenty of resource and expertise to try to track the market as closely as possible.

    An index tracker fund is one of the simplest ways to invest. This fund could be a good addition to a broader investment portfolio aiming to deliver long-term growth.

    More about this fund, including charges and how to deal

    Legal & General International Index Key Investor Information

    Troy Trojan

    Investing in a number of different companies isn’t the only way to diversify a portfolio. Different investment types could help too.

    Total return funds could be a good choice as a balanced option because they’re more conservative. They normally hold a mix of shares, bonds, commodities and currencies. This could offer modest growth over the long term and help shelter money when stock markets fall. But they aren’t likely to keep up with stock markets when they rise quickly.

    Troy Trojan is run by experienced fund manager Sebastian Lyon. Part of the fund invests in shares of well-established companies in countries like the US and UK and some smaller companies too, which can be more volatile. The rest invests in UK government bonds and US inflation-linked bonds, which could provide some shelter from rising inflation. It also holds gold and cash, which can help offer some stability when times are tough in the economy and stock markets.

    Overall the fund holds a small number of investments. This means each one can have a meaningful impact on the performance, but it does add risk.

    The fund could form part of the foundation of a broad investment portfolio, bring some stability to a more adventurous portfolio, or provide some long-term growth potential to a more conservative portfolio.

    More about this fund, including charges and how to deal

    Troy Trojan Key Investor Information

    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

    Learn more about investing

    Category: LEARN ABOUT INVESTING

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    Category: Investing essentials

    Diversification: what you need to know

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    Risk: what you need to know

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    Investing behaviours: what you need to know