Diversification enhances investment stability and mitigates risks

Investing experts emphasize the importance of diversification in building a strong investment portfolio. Diversification involves spreading investments across different asset classes, such as stocks and bonds, to reduce risk and volatility. Last year, local bonds outperformed stocks. However, in the past, stocks have sometimes delivered better returns. By owning both types of investments, you can balance your portfolio, making it more stable over time. The performance of stocks can vary widely. For instance, last year, Converge was a standout on the Philippine Stock Exchange (PSE), with its share price nearly doubling. In contrast, Bloomberry saw a significant drop, losing 53.5 percent of its value. If you held a mix of stocks, Bloomberry's decline would not heavily impact your overall investment. Mistakes in investing can lead to substantial losses. The size of your capital influences your potential returns. A 20-percent gain on a smaller investment generates less profit than a 10-percent gain on a larger one. Thus, avoiding concentrated bets on individual stocks is wise, as unexpected events can lead to steep losses. There are various ways to diversify beyond owning different asset classes. Investing in foreign stocks and bonds can provide exposure to global markets. For example, last year, the US S&P 500 gained 23.3 percent, while the PSEi rose only 1.2 percent. With the rise of funds focusing on foreign markets, Filipinos can easily invest in global assets. Another approach is to invest in stocks and bonds across different industries. Each sector can react uniquely to market conditions. For example, the PSE financials index surged by 24.1 percent last year, while the property index fell by 16.7 percent due to high-interest rates. Investors can also diversify their bond portfolio by including bonds with varying maturities. This strategy allows access to liquidity and opportunities as they arise. Overall, while high returns can be tempting, diversification offers a safer and more balanced investment strategy.