Diversify to protect your investment

Risk is an inevitable consequence of investing, but it can be mitigated with a portfolio diversified across different sectors, asset classes and geographical regions

Understanding the dynamics of any investment opportunity requires us to recognise the three following basic elements: • Expected Return. This is the average return an investor might expect, if he or she were to make exactly the same investment many times through history; • Variance - how far from the expected return the actual result could be; or • Risk - the consequence of not getting what you expected. This last point is very important. Imagine that I have three playing cards, two red and one black, face down on a table. The probability that you will select a red card is 2-1 on, or 66...