INSIGHTS

Diversification by definition is distributing your risk across various kinds of investments, with the end game resulting in elevating your chances of financial success, especially as markets these days tend to be volatile and unpredictable. A diversified investment portfolio holds a mixture of savings, income and expanding investments. Diversification is important because it enables the investor to have more than one option, increasing the chances of fruitful results. Therefore, it can be strategically sound to look into more than one investment opportunity. This “don’t place all your eggs in one basket” approach may help you avoid loss and limits your degree of risk in the event of any unforeseen situations such as market crashes and other economic turbulence.

Smart investments on the other hand, often involve less risk as you place your money in one or two selected investments. This may seem like a sound plan, if you are capable of predicting the future of a certain industry that is on the rise or with a guaranteed future.

The Investor

When it comes to investors, some tend to have greater risk appetites than others, with some leaning towards expanding and diversifying their portfolio, and others with a lesser appetite preferring selective investments that could possibly yield higher returns, but come with higher risk. Once investors choose their investment style, they are likely to remain within their investment comfort zone.

Making the critical choice between diversifying or choosing one or two investments requires an in-depth study of the market, as well as professional guidance. This is simply because markets vary not just in nature, but also in laws and regulations when it comes to investing in any given industry, in addition to the laws and regulations that govern investing, taxes and returns.

Traditional Vs. Modern

Many people tend to believe that brick and mortar investments cannot be included in smart investments. This is a common misconception, since most investments depend on a group of factors that make them “smart” such as track record and history, low risk and cash flow.

The same can be said when approaching the modern tech industry that is today booming. Some investments in this industry can be likely to fail due to high levels of competition and/or know-how being readily available, leaving the investor lacking in understanding its true nature and at a great disadvantage when believing that they will get decent returns in an industry that is intricate and competitive.

Case by Case

There is no golden rule in investment or a one size fits all approach. What usually tends to happen with investors is that they play it safe by having a diversified portfolio, which doesn’t always guarantee lower risks and can be the same as not having one at all. The answer to this common dilemma is to go through a careful selection process that will help you identify opportunities and choose whether you want to steer your business towards diverse or smart investments. This needs to be a highly customized scenario for each investor, depending upon a variety of elements such as the current market, the nature of the investment, the investor‘s personal mindset and goals, and the investor’s current financing. Only then can a calculated choice be made on which investment direction.

Additionally, smart investments can manifest in the form of takeovers or agreements, or simply deciding to invest in a relatively new industry that seems to have promising signs, as you beat everyone else to the punch. However, they often require higher financing and more time before the investment pays off, and can be short- term, mid-term or long- term depending on their given nature and due to their different lifecycles and life spans.

Purpose

There is no right or wrong when it comes to choosing between diversified and smart investments, and there is no given time when opting for each, as several factors have to be taken into consideration before moving in either direction. Both investment choices aim to achieve the same purpose of generating wealth, as the path to wealth development is paved with endless investments, which in time lead to growth and higher profits.