Diversifying simply: not putting all your money in one basket
AmanaFi team · Updated · 1 min read
Diversifying means spreading your money across several types of assets so one incident does not wreck everything. A simple split into three blocks is enough for most savers.
Three simple blocks
Think in terms of function rather than product.
- Cash: emergency fund and the next months' spending.
- Medium term: project savings due in one to five years.
- Long term: diversified real assets, with a horizon of several years.
Diversifying within blocks
For the long term, avoid concentrating money in one company, one sector, one country or one property. A broadly spread compliant fund answers this idea, with its own fees and risks.
Rebalance from time to time
Once a year, check whether one block has grown too large after a rise or fall. Adjust by directing new payments to the block that has become too small, rather than selling everything.
Frequently asked
Does diversifying guarantee avoiding losses?
No, it only reduces the effect of an isolated incident. All assets can fall together in a crisis, which justifies an emergency fund.
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