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Asset Diversification: How It Lowers the Risk on Investing

by AOG Wealth Management

Risk is inherent — for multi-million dollar enterprises, for small businesses, and for investors. To lessen investment risk, Potomac asset management experts advise investors to diversify their investment portfolio. Diversification is a critical part of an overall investment strategy.

To learn more about asset diversification, our asset management staff at AOG Wealth Management in Washington, D.C. have prepared some FAQs about this strategy:

Question: What is asset diversification?

Answer: Asset diversification means distributing your assets among different investments to lessen your overall investment risk. The logic for this is quite simple: for example, if one investment goes downhill today, your other investments will still have the chance to earn on the same day, reducing the risk of losing money on any given day.

This risk management technique is used by experts to ensure that you would still have your capital intact even if you lose a certain amount of money on a particular investment.

To make this strategy work, your investments should be spread across different asset classes such as cash, fixed interest, and property, and among different asset categories, such as stocks, bonds, and cash. By doing this, your investments are better prepared to manage market swings in a particular asset class thereby lowering the overall risk in your total portfolio.

Q: Is there any downside to asset diversification?

The main challenge for investors is to make sure they fully understand what it means to be diversified. Common mistakes are:

  • Inadequate Diversification: Investments are not diverse enough to make a significant difference.
  • Over Complication: Too many investments on different spectrums that result in unbalanced asset management.
  • Possible Missed Upswings in the Market: The lower the risk, the lesser the returns would likely be.

Q: How can I avoid these mistakes?

Seek the help of an experienced asset management firm in Washington DC like AOG Wealth Management. Our team has the expertise and the experience to handle asset diversification effectively and efficiently. AOG Wealth Management adapts the so-called ‘Ecclesiastes’ investment model, in which we manage seven or eight asset classes that have very little or may have nothing to do with each other. This is what is commonly known as ‘diversification’ and it works by allowing your portfolio to grow, even when the economy is gloomy. You are protected because if one asset performs poorly, the others will not in any way be influenced by that particular asset class because they have nothing to do with one another.

To know more about our services, just browse through our website or give us a call and we’ll be more than happy to assist you with all your questions about asset diversification.

Category: Blog, Q & A