Your parents or grandparents may have said at some point that “it’s important not to put all your eggs in one basket.” This phrase comes from the story of a person who collects eggs and is instructed not to leave them all in a single basket when transporting them. After all, if the basket falls, all the eggs are likely to break, resulting in a total loss. On the other hand, if the eggs are distributed in several baskets, if one falls this would result in the loss of only some eggs, and not all.
This is a perfect analogy for the world of finance. Just like eggs, if an investor puts all his money into a single product, he can lose everything.
Diversifying investments means distributing money among various types of investment and sectors, with the aim of reducing the total risk of the portfolio (that is, the set of all investments). “Diversification allows the investor to mitigate potential losses, since different assets can react differently to economic and market events,” says Marcos Piellusch, a professor at FIA Business School.
Why this is important
Diversification helps to reduce the specific risk of a particular investment. If one asset suffers a sharp drop, the other assets in the portfolio can make up for that loss, protecting the investor from excessive volatility.
But it is worth remembering: diversification does not eliminate risk completely, it only balances possible losses with gains from other investments. Even small investors can, and should, diversify their portfolios. “Technology and digital investment platforms have made it possible to diversify at lower costs, facilitating access for all investor profiles,” says Piellusch.
Don’t make mistakes when you diversify
■ Avoid excesses: Investing in too many assets can dilute returns and increase transaction costs.
■ Look for unrelated assets: investing in assets or sectors that are related (two cryptocurrencies, for example, or in securities of two retail banks) is not effective in reducing risks.
■ Stay focused: diversification should always be aligned with the investor’s financial goals.
■ Monitor the portfolio: It is important to review and rebalance the portfolio as needed to maintain the investment strategy.
■ Avoid reacting in the short term: Diversification is a long-term strategy — impulsive reactions to short-term variations can hurt portfolio performance.
What makes a portfolio diversified
The assets to be included in an investment portfolio can be classified into two broad categories: fixed income and variable income.
1. Fixed income with stable and predictable yield
This is an option for those who want daily liquidity and returns that follow the interest rate. Examples: Tesouro Selic, CDBs, LCIs, LCAs and DI funds (funds that invest mainly in public and private securities linked to the CDI).
2. Fixed income with yield that can fluctuate
Although the yield is known at the time of purchase, the return on the investment may vary according to the future interest rate, which affects the return for the investor. Examples: Tesouro Prefixado, Tesouro IPCA+, debentures and Fixed Income Funds.
3. Variable income
This investment can fluctuate a lot, depending even on external factors, such as economic crises. Examples: stocks, Real Estate Funds (FIIs), Equity Funds, commodities, exchange-traded funds (ETFs), currencies and cryptocurrencies.
