Triple diversification
- Investment diversification means that your portfolio includes liquidities, fixed-income securities (such as term savings or bonds) and growth stock (equity or equity fund shares). Thus, you benefit from complementary investments that differ in their
return characteristics and performance.
- Term diversification is useful in the short, medium and long-term. If you have $10,000 to invest in term savings, you can spread this amount in equal parts over 5 years: $2,000 in a security for a 1 year term, $2,000 in a security for a 2 year term
and so on. This way, you will receive income annually from your maturing investments, which you can reinvest for the long-term to benefit from increasing rates.
- Geographical diversification is including Canadian and foreign securities in your portfolio and benefiting from economic growth, regardless of the continent or country of origin.
You can diversify to a greater degree than basic triple diversification:
- Diversification of economic sectors of activity: These sectors do not react in the same way as market trends; if you invest in shares, it is important to distribute your assets among various sectors of activity (such as health care, technology and
public services). You may invest in Canadian or American equity funds. If so, their portfolio mix generally already includes diversified sectors.
- Diversification of capitalization: When you invest on the stock market, regardless of whether you invest directly or in mutual funds, it would be wise to choose growth company securities (small and medium capitalization) over major company securities
(large capitalization) because, in any given economic situation, they do not always behave in the same way.
- Diversification of management styles: Diversify your mutual funds! Choose funds where different managers have different management styles: some may be aggressive, others may be more cautious. These styles complement one another and increase your
return potential.
