The Golden Rule of diversification

Whether you are working or retired, you should get the maximum return on your investments.

A good way to do this is to diversify your investments. You will increase your portfolio return potential while protecting yourself from market fluctuations.

Diversification is the golden rule of investment; even the top-ranked portfolio and pension fund managers always diversify, which largely explains their success. What exactly is diversification? It simply means: don't put all your eggs in one basket! Furthermore, all financial advisors agree on basic triple diversification.

If, for example, you invest $20,000 in an international equity fund, your portfolio then becomes vulnerable to foreign market fluctuations. If however, you distribute the same amount among several types of investments (term savings, bonds, dividend funds, Canadian and foreign equity funds), you will increase your chances of obtaining a good overall return, regardless of market conditions.

It is important to understand that the major categories of investment (liquidities, bonds, equity) do not fluctuate in the same way, or at the same rate. When interest rates change, some investments may rise while others may register a drop. This is why it is wise to diversify: you will always benefit from economic fluctuations.