It can be tempting to put a large percentage of your money in one investment type that you are convinced will do well, but what happens if you are wrong?
You could lose all your money in a flash? Spreading your investments into different asset classes, industries, countries and even currencies will help guard against a major loss.
Diversification means “not putting all your eggs in one basket.” Diversifying is like protecting your money. Investors diversify by spreading their investments across a variety of investment types and industry types. So if one company or industry falters, investors do not lose all of their money.
For example you could invest some of your money in a taxi, some of it in a farm and some of it in KCB shares on the Rwanda OTC Market. If rains fail but KCB share price rises, your total investment portfolio might remain the same or even grow higher. On the other hand if your driver crashes the taxi and you are liable to compensate injured passengers, your bumper harvest could cushion you against financial stress.
Also, if you the kind who would fancy investing in stocks but are limited by the single company listed in Rwanda would soon be interested to know that more Kenyan companies are planning to cross list there shares in Rwanda.
But more importantly, to avoid being prone to the movements of the Rwanda OTC Market, an investor can invest in companies listed on the Uganda Securities Exchange or Nairobi Stock Exchange without having to go there. One simply needs to enlist the help of regional stock exchange brokers like African Alliance who can advise one to invest in which stable and growing companies as well as in investment tools like mutual funds.
By diversifying your investments, you’re acknowledging that the markets and businesses in general susceptible to losses or can make gains. With investment diversification, it’s OK if some of your assets do poorly each year.
The rule is that the winners, over time, outnumber the losers. The purpose of investment diversification is to spread out your investment risk and balance it among the different asset classes.