iversity in diversifying

Russell
Moldowan

THE BOTTOM LINE

_ FROM THE day you
-became an investor, you’ve
probably been told to diver-

sify your portfolio... ©
Diversification is a fundamental

financial principle that can spell the:

ifference between investing suc-
cessfully and consistently year after
year and achieving excellent invest-
‘ ment results one year and dismal
‘ones s the next.

Diversification simply means
you invest in a number of different
assets whose prices respond to dif-
ferent forces. Also, investing in dif-
ferent markets, for instance stocks.
bonds and precious metals. The
reason for having a variety of
investments is that the overall
volatility, or risk of a diversified
portfolio, is less than the risk of
any single investment or any single
financial market.

At the same time you're striving
for diversification, however, you
must guard against overdiversify-
ing. If you invest in too many secu-
rities, you will reduce the impact of
a valuable increase in one invest-
ment, because each asset represents
such a small percentage of your
tota! portfolio. In addition, your
transaction costs will be relatively
high.

Your goal should be to achieve
reasonable diversification, given
your financial goals, resources and
tolerance for risk.

- Ten growth stocks might be
appropriate for one investor, while
another would be more comfortable
with 20 — some growth and some
income-producing. A qualified
investment adviser can offer guid-
ance to determine the level of

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diversification that makes sense for
you.

For many investors, mutual
funds represent the easiest, lowest-
cost way to achieve “instant” diver-
sification.

The Bottom Line is:
Diversification is not just picking a
bunch of stocks. Rather it is a
process of reducing portfolio risk
through the selection of different
securities that will react differently
to changes in the market and econ-
omy. Your first move should be
finding a qualified investment
adviser, who can help you achieve
a level of diversification that will
be right for you to meet your goals.

Russell is an investment adviser
with ScotiaMcLeod. He advises on
investinent management and rélire-
ment planning. If you have any
questions on building a diversified
portfolio or would like to have him
answer your questions privately or
in this column, you may contact
him at 661-7475, e-mail at rus-
sellm @unixg.abe.ca, or write at
P.O. Box 10342, Pacific Centre,
Vancouver, V7Y 1H6.

he, i dunt
ih ormer

* Provides market oudooks for both Canadian & Internationa! mutual funds.
* Offers advice on how to select the right funds,
+ Informs you of the leading mutual fund investment opportunities that
are available. y
* Includes a list of recommended funds.

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