Inadequate diversification

You need to ensure that your portfolio is a mix of different asset classes and globally diversified.

Investing in assets such as equities will generally provide the best returns over the longer term, but your returns only matter when you want to access your capital. These investments will fluctuate in value and those that do so most will (generally) have the greatest potential for return.

Not all investments fluctuate in the same way or indeed in the same direction. Some investments might be rising in value whilst others are falling. We call this ‘negative correlation’. By combining assets that correlate differently, we seek to build diversified portfolios that will maximise returns for a given level of risk.

One of the problems with diversification is that correlations between different assets vary over time. Usually fixed interest bonds represent a source of protection during equity market falls but that’s not always the case.

EQ tip: the overwhelming view of professionals is that broad diversification is a sensible approach.

I have a question...

We're here to help. Quickly get to the answer you need by speaking to an EQ financial adviser now: Call 020 7488 7171 Mon-Fri, 8:30am-5:30pm
  • Search the EQ library

  • Find articles by theme

Some Free EQ Guides

10 Tips for Investing a Windfall

Coming into money isn’t something that happens often. Before you commit yourself to spending, investing, giving gifts or even giving up your job, here are some tips on how to make your windfall work for you in the long run.

Financial Planning Services

EQ is a Chartered Financial Planning firm able to offer a wide range of services to private clients including tax optimisation, retirement income planning and estate planning.

Final Salary Pension Transfers

The April 2015 Budget saw the most radical changes to the pensions landscape for a generation, but the new flexibility on offer is only available to personal pension holders. Members of final salary schemes can only access the new rules by transferring to a personal pension.

Saving Inheritance Tax

This guide explains how planning ahead of time can provide for – and in most cases reduce – the amount of tax that is ultimately due on your estate.

Spring Clean Your Finances

When it comes to money, it is fairly easy to get so entangled in the jargon that you lose sight of basic sound financial planning principles. This guide provides some pointers on important steps to take, and a few pitfalls to avoid, along the road to a healthy financial future.