Investing best practice: diversify, because - picking the winners is difficult.

In March 2026, Morningstar released its biannual Asset Class Gameboard, showing the performance of seven major asset classes over the last 20 years to December 2025.

While the gameboard does a good job of highlighting the winners and laggards of each year, the variation in performance  shows how difficult it is to pick future winners, demonstrates the value of Portfolio Diversification

Understanding Diversification when you invest

Diversification is a key principle in investing that helps reduce risk by spreading investments across different asset types.

What Is Diversification?

Diversification means holding a mix of assets like stocks, bonds, cash, and property. Each asset class behaves differently, so spreading your investments reduces the chance that one loss will severely impact your portfolio.

Why Diversify?

Markets can be volatile. A diversified portfolio is better able to handle market swings and reduces the risk of large, permanent losses. The aim is to protect your investment goals over the long term.

How to Diversify

• Across asset classes: Commonly, investors hold a combination such as 60% equities and 40% bonds/defensive.

• Within asset classes: e.g. when you’re looking at the biggest Australian companies, the majority are stocks are in the mining and financial sectors, so diversifying into other sectors or international markets can reduce risk.

Can You Diversify Too Much?

Yes. Holding too many similar investments can increase costs and not necessarily improve financial returns. It’s important to understand and check what you own and avoid overlapping exposures.

Dividend Reinvestment Plans (DRPs)

DRPs (offered in Australia) use dividends to buy more shares of the same company – you ca elect to do this or it’s automatic. However, this can increase  concentration risk if you don’t manage your holdings carefully.  Early-on, reinvesting dividends can boost growth, but later it may be better to take dividends as cash to buy into other companies.

Summary

Diversification is about managing risk by balancing your holdings. The right mix depends on your financial risk tolerance and investment goals. It’s best to avoid over-diversifying, and focus on assets that align with your objectives.

• Next steps

  You’re most welcome to contact us, either by email or using the CONTACT US NOW button elsewhere on this page, to discuss how to best allocate your funds to you can manage your cash flow and be more in control of your financial health.

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