By: Adrian Khiat
After writing about Anne Scheiber last week, it inspired me to write about Diversification and Compounding today.
Diversification is very powerful strategy because it reduces the various types of investment risks that are present in any portfolio. By allocating your assets among different asset classes and sectors, gains in one part of the fund can lessen or even eliminate the impact of losses in another fund.
With occasional rebalancing, the returns will be better.
An illustration to show you the power of compounding and diversifcation
Scenerio A
Mr Tan invested $100,000 into a fund that returns 5% over 20 years
Eventual returns = $265,330
Read more...