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Afraid of volatility? Offset your risk with diversified investments

The higher the risk, the greater the reward. Investments are not exception. But while making such investments, you need to follow a neatly packaged diversification strategy to overcome any extreme risk. Let us find out how to reduce potential volatility in our investments.

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Published : Feb 22, 2023, 7:12 AM IST

Hyderabad: A risky investment carries its own rewards. Not everyone opts for traditional investments like fixed deposits. They take risk and invest in a mix of stocks, bonds, precious metals and real estate. Diversification is a tested strategy to grow your money. Your returns will not be tied to the performance of a single market/sector. This will help you to overcome the impact of any downturn in a particular market.

How does diversification work?

Bonds and real estate in your portfolio may not lose value even if the stock market falls. It can help offset losses from stock investments. Similarly, if the real estate market faces a downturn, stocks and bonds in your portfolio will do well. This can reduce the impact of losses from real estate investments. Diversification makes your portfolio less volatile over time. This is beneficial for those close to retirement or those with a low risk tolerance.

Options for portfolio diversification

Stocks: Investing in stocks has the potential for high returns though they have some disadvantages. Invest in a mix of large and small companies. Always know in depth about the product and services offered by the company while investing. Also, investments in certain industries can lead to high losses. So be careful. Investing in stocks should be done through good analysis.

Bonds: These are investment instruments that can provide more consistent returns than stocks. One can invest in corporate bonds and government bonds of various maturity dates. These are low risk. Can provide stability to your portfolio. There are a few different types of bonds that can be invested in. Each bond has its own risks and rewards. So it is important to do some research before investing. Bonds can be bought through a broker or online. Bonds are a great way to balance an overall portfolio. You can get stable returns without taking much risk.

Mutual Funds: Mutual funds provide a way to invest in a diversified portfolio of stocks, bonds or other assets managed by a professional investment manager. Market experts say that by providing an opportunity to diversify risk, investors can get better returns. Mutual funds usually invest in more than 50-60 stocks. Sometimes 100-200 stocks. Then your investment will be divided into different sectors. So if one sector fails to perform, the performance of other sectors can give good returns to mutual fund investors. Even with a few hundred rupees, investments can be made in mutual funds.

Realty, Gold: Many Indians still consider real estate as a top investment after traditional investments such as gold. Investment in this sector requires high capital and a long term lock-in period. There is risk involved in selling/buying property. There are many factors to consider when investing in real estate. Any investment should be diversified. Investments in metals like gold and silver can also be considered.

Investment strategy: Having a diversified portfolio is important to increase the chances of investment success. Consult a financial advisor to determine the best investment strategy for your specific goals and risk tolerance.

Hyderabad: A risky investment carries its own rewards. Not everyone opts for traditional investments like fixed deposits. They take risk and invest in a mix of stocks, bonds, precious metals and real estate. Diversification is a tested strategy to grow your money. Your returns will not be tied to the performance of a single market/sector. This will help you to overcome the impact of any downturn in a particular market.

How does diversification work?

Bonds and real estate in your portfolio may not lose value even if the stock market falls. It can help offset losses from stock investments. Similarly, if the real estate market faces a downturn, stocks and bonds in your portfolio will do well. This can reduce the impact of losses from real estate investments. Diversification makes your portfolio less volatile over time. This is beneficial for those close to retirement or those with a low risk tolerance.

Options for portfolio diversification

Stocks: Investing in stocks has the potential for high returns though they have some disadvantages. Invest in a mix of large and small companies. Always know in depth about the product and services offered by the company while investing. Also, investments in certain industries can lead to high losses. So be careful. Investing in stocks should be done through good analysis.

Bonds: These are investment instruments that can provide more consistent returns than stocks. One can invest in corporate bonds and government bonds of various maturity dates. These are low risk. Can provide stability to your portfolio. There are a few different types of bonds that can be invested in. Each bond has its own risks and rewards. So it is important to do some research before investing. Bonds can be bought through a broker or online. Bonds are a great way to balance an overall portfolio. You can get stable returns without taking much risk.

Mutual Funds: Mutual funds provide a way to invest in a diversified portfolio of stocks, bonds or other assets managed by a professional investment manager. Market experts say that by providing an opportunity to diversify risk, investors can get better returns. Mutual funds usually invest in more than 50-60 stocks. Sometimes 100-200 stocks. Then your investment will be divided into different sectors. So if one sector fails to perform, the performance of other sectors can give good returns to mutual fund investors. Even with a few hundred rupees, investments can be made in mutual funds.

Realty, Gold: Many Indians still consider real estate as a top investment after traditional investments such as gold. Investment in this sector requires high capital and a long term lock-in period. There is risk involved in selling/buying property. There are many factors to consider when investing in real estate. Any investment should be diversified. Investments in metals like gold and silver can also be considered.

Investment strategy: Having a diversified portfolio is important to increase the chances of investment success. Consult a financial advisor to determine the best investment strategy for your specific goals and risk tolerance.

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