Why is it important to diversify when making an investment portfolio?
When an investor decides to create a portfolio, there are some aspects to be deeply analyzed. According to Fellow Funders, the three more important ones are:
- To adapt the portfolio to the investor’s qualitative and cuantitative objectives.
- The correct relationship between the expected profitability and the assumed risk in every investment performed.
- The necessary diversification of your portfolio. This diversification should be in both the investment and cash/recovery periods.
If diversification is an important aspect in any properly planned portfolio, when we consider the alternative investment universe this diversification becomes essential given its peculiarities.
We are dealing with investments in companies with theoretically higher risks than those of an SME or consolidated company, but with probabilities of obtaining higher returns in a medium/long term time horizon. In addition, we must also consider several factors inherent to this type of investments such as liquidity, volatility, or probability of default.
FACTORS TO TAKE INTO ACCOUNT
When we talk about diversification, we would like to remark a set of aspects you have to know and value:
- Each investor must adapt the amount for alternative investments to their personal financial situation. In general, investments in alternative investment assets should never exceed 10% of your financial assets, except in the case of professional investors. Consequently, you should build a diversified portfolio in different types of investments (fixed income, equities, liquidity, … and alternative investment).
- After the amount of our portfolio for our alternative investment has been defined, we should consider the need to diversify in different companies and activity sectors, and technologies. Given that the default probality in this type of companies is higher that the traditional ones, it is estiimated that we should invest in a minimum of 13/15 differente companies with the aim of optimize our risks-profitability binomial.
- We should pay attention to the time horizon in which we create our alternative investment portfolio. We are generally talking about log term investment, with average divestment periods close to 7 years on average in Europe. Consequently, we should have investments with different maturity periods to start generating liquidity (through divestments) from the fifth / sixth year onwards. This means that we should not invest all our capital in this type of assets all at once, but we should invest over a period of 3 to 5 years. In this way we will optimize the generation of liquidity of our portfolio as well as we will be able to follow the possible “fashions or trends” that periodically occur in the world of alternative investment.
IT IS TIME TO DIVERSIFY YOUR INVESTMENT
Fellow Funders will keep insisting on this important idea: Diversify your investment. Through our Equity Crowdfunding, we can help you creating your portfolio. As you know, we use our own risk and valuation methdology to make a filter and work only with the best tams and projects. We have been much time working on projects from different sectors, and you have access to all the necessary information through our platform.
We seize this opportunity to thank you, if you are already an investor, for trusting us. If you have not taken the plunge yet, we encourage you to sign up and analyze the plans we are presenting. We believe that all of them comply with the conditions to become successful projects.
Would you like to join us? We are waiting for you!