Diversification - The Building Blocks
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What is diversification and why is it important for investments?
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How does mixing different asset classes reduce investment risk?
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Welcome to the Australian Finance Podcast, a podcast for people who want to learn more about their personal finances and get the most from their money. This series is hosted by Kate Campbell from HowToMoney and Owen Raskovich from Rask Finance.
The Australian Finance Podcast is provided for educational purposes only. The information is general in nature and does not take into account your needs, goals or objectives. What that means is the information does not apply to you specifically. So consider getting the advice of a licensed and trusted professional before acting on the information. Kate, we're talking about diversification and it's titled The Building Blocks of Diversification. What an episode.
Yes, very excited, Owen.
Welcome. So what's this episode about?
So we wanted to talk a bit more about diversification because we probably mention it in every episode and maybe we don't explain what we mean by it too much. So we're talking about mixing different asset classes, different fund managers, everything together to hopefully reduce your risk in your investments by not having all your eggs in one basket.
Well, that's it. Thanks for tuning in, folks. That's the end of the episode. Not putting all your eggs in one basket.
That's what everyone tells you, right? We don't want to put all our investments in Broome at the moment.
Yeah, not in Broome. Are you talking about Broome as in WA?
Yeah.
Yeah?
What are the different types of diversification to consider?
Is there an ETF called Broome?
No, no, I'm just thinking like rooms, like in the household items, but okay, cool. So why don't we actually, why don't you actually give us the finance definition of what diversification is?
So we're spreading out our investments across multiple different places. So not just asset classes, fund managers, different countries, different currencies to help reduce the risk of our portfolio.
Okay, so let me get this straight. You're telling me that I can't put all of my money in gold?
No. Some would argue gold is part of a diversified portfolio.
But not all of it?
No.
Okay.
So by not putting all our money in gold, we aren't fully exposed to that one asset class. So if suddenly gold loses value, hopefully not our entire portfolio goes down with the ship. Okay. So if we maybe have some money in silver.
Okay.
A little bit of diversification, but still the same asset class. So not full diversification. Okay.
Okay, so you're getting some of the benefit of having something else in the portfolio.
Yeah.
Okay, what about like correlation? What do you know about it?
Well.
Put you on the spot.
Does gold go up when stocks go down?
Historically, it has seemed likely to do so. So that's the benefit of diversification.
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Chapters
8 chapters
1
What is diversification and why is it important for investments?
0:00–1:15
2
How does mixing different asset classes reduce investment risk?
1:15–2:57
3
What are the different types of diversification to consider?
2:57–5:00
4
Why should you avoid putting all your money in one asset class?
5:00–6:02
5
How does correlation between assets affect diversification?
6:02–8:21
6
What are examples of bad diversification strategies?
8:21–10:00
7
How can a diversified portfolio help during market downturns?
10:00–12:37
8
What are some practical tips for building a diversified portfolio?
12:37–29:20
Speakers
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