A Unique Approach to Diversification

03/29/2022 09:33 AM By Matt Ratliff

Diversification is an investment  hot button and frequent topic of discussion among investors & traders.  How many investors / traders have the same perspective and implementation of diversification? Is there really only one way to diversify?   And, since we all talk about it, why aren't we better at doing it?  Have we set goals that are realistic and achievable?  Watch this video for a new unique diversification strategy.  Tell us in the comments below what you are doing to diversify.

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What is Diversification?
Diversification is an investment strategy with a goal of blending a wide variety of assets to limit or minimize the overall portfolio risk from a single (or multiple) underperforming asset.  
What are the ways to Diversify?

Typical diversification includes spreading your portfolio across multiple asset classes, industries, and geographies.  One approach (from this video) is to evenly spread your investment across 5 different equities in 5 different industries.

What is a unique approach?

We are suggesting a unique way to diversify is to spread your investments over different time frames, supplementing your "buy and hold" long term strategy with intermediate and short term strategies. 

What is Correlation?

Correlation is the measure of how closely 2 securities/assets move.  If they move closely together, i.e. mirroring each movement up or down, they are highly correlated.  Having too many highly correlated investments in your portfolio will result in sharp declines in your portfolio when they go through drawdowns.