The saying “diversification is the only free lunch in investing” holds a lot of truth. Coined by the renowned economist Harry Markowitz, it emphasises how you can manage risk effectively without sacrificing potential returns. At its core, investing is about putting your money to work to generate solid long-term returns while avoiding unnecessary risk. In this case, risk refers to the chance of losing your capital permanently. But how do you diversify your portfolio effectively? While the advantages of diversification are clear, are there any potential downsides to this strategy?

Diversify your industry exposure

With the rise of online brokerages like Moo Moo and Tiger Brokers, building an investment portfolio has never been easier. With a few clicks or taps, you can own shares in companies across a variety of sectors. But here’s a question: is your portfolio truly diversified in terms of sector exposure? For example, you might think you’re diversifying by purchasing shares of all three major banks...