As the old saying goes, “Do not put all your eggs in the same basket”. Diversifying your portfolio means investing your money in different asset classes and securities in order to minimize the overall risk of your portfolio.
The benefit of diversifying our portfolio helps to reduce the volatility over time.
If you think I put all my money into stocks, then you are wrong. I invest my money into different asset classes depending on the current situation.
When inflation is high and Fed raises interest rates, assets such as fixed deposits and bonds benefit from this. Interest rates for Fixed Deposits and bonds rises. For example, Singapore Savings Bonds reached all time high. We also saw interest rates for SGD Fixed Deposits revive after so many years.
When Fed cuts interest rates, this stimulates spending and as a result, most stocks soar as businesses benefit from the cheap cost of borrowing.
If you are interested in how I allocate my cash, I invest 78% of my money in stocks, 11% in Singapore Savings Bonds and 11% in SGD Fixed Deposits.
From my allocation, you can see that I am not such a conservative person. I have more cash in stocks as compared to less riskier assets such as Singapore Savings Bonds and Fixed Deposits.
In terms of ranking of risk from highest to lowest:
- Stocks (Highest Risk)
- Bonds (Medium to Low Risk)
- Fixed Deposits (Lowest Risk)