◆How can we diversify our investments?
It is usually said that risk and return are balanced. If a high-risk product hits the mark, you can earn a large return. However, the probability of this is very low, which is why they are considered high risk.
On the other hand, low-risk products are considered to have less blurring of expected returns instead of large return
When people hear the term “diversified investment,” they tend to think that it is easy to just divide their investments among various products. Therefore, many people are only concerned with diversifying their investment portfolio into multiple products, and in few cases, this actually results in risk diversification.
For example, a stock investor may think, “In order to diversify risk, I should invest in Toyota, Honda, and Nissan in Japan. Unfortunately, this does not mean that they are diversifying their investments.
Although the investment is divided among several companies, the stock prices in the same industry generally move in a similar manner. In other words, when they go down, they are likely to all go down at the same time, and this is not a true diversification of risk.
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◆Three key points for successful diversification
When considering investment diversification, the following three points should be taken into account to be more effective.
《Three key points for risk diversification》.
1、Time diversification
2、Diversification of currencies
3、Diversification of assets
- Time Diversification
Investment products are constantly influenced by market trends, and their prices rise and fall. Therefore, if you invest your money all at once, you will lose a lot of money when the price drops.
By investing funds in installments, a time difference is created, which also leads to risk diversification. Time diversification is the basis of long-term investment.
2, Currency Diversification
As you know, the yen is currently weakening. This is mainly due to the Bank of Japan’s continued monetary easing policy, the only one among developed countries.
The BOJ’s monetary easing policy was originally initiated to end deflation. Although Japan is now leaning toward inflation amid global inflation, the economy is not improving, so this policy is expected to be maintained for the foreseeable future.
A weak yen damages the value of a currency. One of the countermeasures against this is to hold foreign currencies.
3, Asset Diversification
Earlier, I mentioned that simply separating stocks such as Toyota and Honda is not true diversification.
Asset diversification means that you can expect to lower your risk by dividing your assets into different types, such as bonds, gold, and crypto assets, in addition to stocks, for example.