How important is portfolio diversification?
When trading we will sometimes have to make sacrifices. There just aren’t enough hours in the day to do everything. We need to prioritize what we do effectively to gain the most benefit.
Depending on whether we are a discretionary trader or an algorithmic trader, will impact how you implement a portfolio diversification strategy.
Key considerations when implementing a Portfolio Diversification strategy
Time will always be a consideration. As discussed previously, diversification is an important component of risk management at the portfolio level, but it is not the ‘golden bullet’.
Portfolios need to be looked at holistically.
Where are our efforts best focused on at this time? It may be that your underlying trading strategy still needs work before you can benefit from implementing a diversification strategy.
Or it may be that your strategies are nice and robust, and you can now focus your time optimizing the portfolio risk side of things.
Ultimately, you’ll need to decide where your time is best served.
But how do I know what to do?
In the video, Martyn goes over some of his personal experiences with how he trades his portfolio of strategies. They don’t just provide you with great educational content, our presenters also trade the markets themselves. Where do they find the time!
Another consideration is how you trade.
Do you trade manually, or do you trade using automation?
If you’re a discretionary trader; your skill, and the number of monitors you have, may limit the number of assets you can manage at once. Again, your circumstances will dictate what works best for you.
A long-only, passive portfolio will need a different approach to diversification than that of a more active portfolio like the example in the video.
So, what can we take away from this?
We need time to implement what we know, and we need to know what to implement when we have the time.
Argh yes, the circle of life trading decisions.. 😌
Take a step back from your portfolio and look at it with a bird’s eye view. What is the most impactful thing you can do now that will help improve your trading?
Did you know we have a Slack group dedicated to trading?
Feel free to join here. We’d love to connect and talk shop.
If you’re new to portfolio diversification, consider reading this post to get some background on the topic.
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Content Disclaimer: The contents of this video (and all other videos by the presenter) are for educational purposes only, and are not to be construed as financial and/or investment advice.