Economics is a highly complex science, often defined and “counter-defined” by hundreds of theories and formulas. However, many of them can be summed up in a game of equilibrium. All calculations are aimed at finding the balance between the market’s supply and demand, the break-even point at which companies start to generate profits, or the balance between growth and sustainability.
Similar to the general economic situation, virtue lies in balance in the investment ecosystem. Every investor who aspires to success must be aware of the risk-return trade-off and should look for that equilibrium to obtain the highest possible return at a sustainable risk for the equity situation. For this reason, Fellow Funders recommends all investors build a diversified portfolio of different projects with different characteristics, yields, and risks.
Divide and conquer
Diversifying portfolios is one of our core mantras. For this reason, we previously discussed the topic on our blog. There is a guide available in our academy and accessible to everyone, whether they are investors or not, in case you want to deepen and broaden your knowledge on the subject. However, we can never underestimate the importance of such an essential issue if we are to achieve the desired balance that all investors (including ourselves) are looking for.
Why should we diversify our portfolio? The investor ecosystem (especially the startup industry) can bring great returns and benefits. However, given the low maturity of the startups and the various uncertainties of the market, even the most promising startup is susceptible to failure. For this reason, it is not advisable to entrust our entire investment to just one project. Similarly, Similarly, we should avoid investing our money in projects with the same associated risks to avoid losing everything (in case the most pessimistic scenario associated with these risks occurs).
The importance of reducing risks
Naturally, this article aims to advise our community on how to mitigate investment risks (not to advise against investing). Inevitably, we must diversify our portfolio with different projects from different companies or management teams, different geographic areas, different sectors, different market targets, different technologies, and different stages.
In short, diversifying our investment portfolio represents an exercise in putting our eggs in different baskets. However, diversification is not all pluses and minuses. As we reduce the amount invested in each project, we will also reduce our potential returns. However, Fellow Funders is convinced that reducing potential returns is preferable to risking our entire investment (in case of severe market impact events).
Diversification also has a time cost due to the significant number of projects to analyze and monitor. Fortunately, Fellow Funders helps our investors to facilitate the task and takes care of the necessary valuation and monitoring reports, reducing this last inconvenience to a minimum.
A diversified investment platform
Do you share our vision of investment portfolios? Are you looking for projects to diversify your portfolio? Then you have the opportunity to fulfill your needs on our platform. We started publishing moderate-risk real estate projects on our platform a year ago. Now, we have added a project associated with the planting of organic almond trees with annual dividends and will soon be launching photovoltaic projects with similar risk characteristics!
However, there is no “yin” without “yang”, and Fellow Funders continues to offer investment opportunities with higher risks but exponential potential returns. We have not forgotten about the startup ecosystem we delved into more than five years ago. Startups that we always bet on, of course, after a rigorous analysis and scoring process.
Startups or lower-risk projects? Which is better to invest in? There is no right answer. Just as a tightrope walker should avoid putting all the weight on one side or the other, we recommend our investors distribute their investments between both types of projects. The virtue lies in the balance and, in the case of investing, in a diversified portfolio.