The benefits of diversification

The benefits of diversification

October 1, 2015


We have been presented with the perfect example in the past two weeks why it’s important for your investments to be well diversified.

This example is a household name known throughout the world – Volkswagen.

The fall in the share price of VW has been spectacular. Prior to the recent emissions scandal the share price had dropped from a year high of approximately €250 to around €160 caused by uncertainty over the prospect of selling cars in China along with the general correction we have seen in the markets over the summer.

However the emissions scandal has really impacted on the share price. Today it’s in the early €100’s and the future remains uncertain.

Without focusing too much on the actual numbers, it’s easy to see that any investor with exposure to VW will have been impacted by this, however if that investor is in a well diversified portfolio his exposure will be limited. If the investor is heavily exposed to VW, then his portfolio will be suffering from a large drawdown.

We have seen this happen time and time again, mostly in Ireland with our Banks and it will continue to happen. It only takes some sort of scandal for a share price to be severely impacted and the market is unforgiving.  If a well respected company like Volkswagen can be impacted, it can happen to any company. Truth is, we simply always cannot tell what is going on behind closed doors!

The solution is to maintain a well diversified portfolio with an appropriate level of risk to prevent this happening to you.

If you are unsure about your investments and would like us to review them, give us a call and we’ll be happy to take a look for you.



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