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Reduce your portfolio risk with diversification

Reduce your portfolio risk

You no doubt have heard about the benefits of diversification, It’s not just “all talk”. Your portfolio must have some degree of diversification. After all, you don’t want to “put all your eggs in one basket”.

Investing all your money in one or a limited number of assets increases the risk of your portfolio. If something goes wrong with one of these assets, this could impact all your money. Rather than having all your eggs in one basket, you take some and put them in different baskets (asset classes). That’s diversification.

What is Diversification?

Diversification is the attempt to reduce exposure to risk by spreading your investment across carefully selected asset classes and geographical regions. You can achieve diversification by allocating, for instance, a certain percentage of your investment to fixed income, equities, real estate, alternative investments, in different sectors, industries or countries.

Although diversification is no guarantee against loss, it’s a prudent strategy you can adopt towards your long-term financial goals.

Why Diversification Work?

Many studies demonstrate the effectiveness of diversification. To put it simply, when you spread your investment across low correlation assets, you reduce the exposure to volatility. The reason for this is that different asset classes and geographical regions don’t move up and down simultaneously or at the same rate. So, if you mix things up in your portfolio, you’re less likely to experience major drops. Remember that some sectors might be thriving while others are going through tough times.

How to Diversify Your Portfolio?

Personal finance courses teach this concept widely in contrast to individual stocks investing. They consider single stock investing similar to casino gambling. In fact, many investors never even invest in individual stocks. Instead, they prefer mutual funds and exchange-traded funds (ETFs). These funds bundle hundreds of stock from various companies and sell them as a singular unit.

You can diversify your portfolio by selecting mutual funds and ETFs from different sectors that follow different trends. Some might follow the ups and downs of the broader market while others remain relatively flat. Other funds might move inversely to the broader market, experiencing ups when most sectors are down and vice versa. So no matter how the market is behaving, a portion of your portfolio is likely to do well. At the same time, this strategy protects against the full exposure of a correction.

Generally speaking, a well-balanced portfolio diversifies away the maximum amount of market risk. Owning additional asset classes takes away the potential of big gainers significantly impacting your bottom line. This is the case with large mutual funds investing in hundreds of stocks, in theory, putting your eggs in hundreds of different baskets.

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4 most common questions our clients have on mortgage

4 most common questions

Property purchase is the biggest financial commitment you are likely to make. It may well be the most significant to you and your family. So it’s natural that you have many questions when considering applying for a mortgage.

Because some of our clients ask similar questions, we invited Daniel Le Moeligou, Director of Home Matters, for an interview. On the video below, Daniel answered four of our client’s most common questions on UAE and UK mortgage.

We hope you enjoy the video and find the information useful. If you have any question you would like to ask, please leave it in the comments section below and we will be happy to assist.

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The history of volatility

history of volatility

During the first half of the year, we have seen varied levels of volatility around the world. This was triggered by several events such as political decisions (mainly in the US), fluctuating oil production, trade dispute, conflicts, uncertainty and the end of Quantative Easing.

As an investor, you should know that investing is a marathon, not a sprint. Investing with a long-term outlook and long-term goals is the best way you can reduce the impact of stock market fluctuations. However, you no doubt may ponder over the risks and rewards of investing. Ponder over how to manage your portfolio to minimise the effects of adverse markets movements.

The first thing to understand is that risk is a necessary and constant feature of investing. Stocks fall, economic conditions fluctuate and companies can go bankrupt. In fact, the very returns that assets generate may reward you for the risk you take.

Secondly, there are many different asset classes available you can invest in, each possessing different risk traits.

With that in mind, one of the best ways to weather volatility is making sure to diversify your portfolio. Diversification may help to boost returns over the long-term and provide some protection against losses, giving you greater peace of mind in periods of market turbulence.

The ten-year chart below illustrates the extent to which different asset classes tend to perform well at different times.  Let’s take a look at the government bonds for instance. They underperformed when equity markets were rising but did better in periods of crisis. The chart demonstrates that past performances cannot be used as a guide to future returns.

 

Asset Class Returns

Asset-Class-Returns-1H-2018

 

A well-diversified portfolio spread across a range of assets, markets and geographical regions, has the potential to provide you with lower volatility.  It helps you to avoid overexposing your portfolio as a whole to undue risk.

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What does a Shrimp, a Goby and an SME Business have in common

What does a Shrimp

Nature is abundant with examples of symbiotic relationships that mutually benefit organisms of different species. Ants protect aphids, bees pollinate flowering plants and birds help to pest control cattle and other mammals, all of which are getting nourishment out of their hard work. Our favourite relationship is the mutualism enjoyed by the Goby Fish and Pistol Shrimp, living in the Indo-Pacific, for its similarities within the SMEs environment.

Their relationship is mutual and both organisms benefit. The shrimp burrows into the sand and builds a home for the Goby fish which watches out for predators. At a sign of danger, the Goby fish warns his almost blind housekeeper, so the Shrimp doesn’t get eaten. The Shrimp can expect predators while the Goby fish has gained a place to live. This relationship for survival can be observed within a vast, complex and thriving marine ecosystem full of its unique set of dangers.

Similar relationships exist within the Small to Medium Enterprises (SMEs) ecosystem.

Consider a small business with one business owner (the Shrimp). The business owner has created a stronghold in the UAE sand capable of housing a Key employee (the Goby). The business prospers within its own ecosystem (Technology, Trading, Service Industry, etc). The business owner and employee share a symbiotic relationship where both benefit, but then:

What happens if the Goby is eaten?

As a business owner this could prove a useful question to ask occasionally, and then consider the following:

Can your business survive without your key people? What happens if they are diagnosed with a critical illness, become disable or suffers a sudden death? How will their loss impact the profitability of your business? How much will it cost to find a suitable replacement? How long will it take to rebuild lost relationships? Do you have a succession plan for such circumstances? Can you put a business protection insurance in place that covers the risk of your Goby being eaten?

The word Symbiosis is derived from Greek, βίωσις “living” and σύν “together”. The fact is that 67% of single owned businesses in the region are unable to stay “together” if the Key person is no longer “living” or to put this another way, a business is unable to continue “living” if the Shrimp and the Goby are no longer together.

With this in mind, SMEs business owners should consider insuring their key people against illness, disability or death so that the business can survive, remain competitive and financially sustainable with the unexpected happens.

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Where to go for Russia 2018… Live!

Where have those 4 years gone!

We are of course talking about Football Fever, when 32 of the World’s Nations gather to compete for the World Cup at Russia 2018.

Alpha are proud to announce that we have joined up with Emirates Golf Club, who have put together their Football Central venue showing every game Live. With a Giant screen and 12 LED’s, the venue has been transformed into a dedicated World Cup Venue.

Below are some details of group packages available for every game for you to take advantage of and please look out for key games that we will organise to meet up and watch the Greatest Show on Earth!

For large groups it may be a good idea to call and book. You can contact us at the phone number +971 4 436 1811 or drop an email to [email protected].

 

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AOP Held Spring Client Cheese & Wine Night

cheese & wine

The Sun had set, the temperature dropped, and the late evening was upon us. There was excitement in the air and with a backdrop of the Dubai Marina skyline the stage was set at Emirates Golf Club, but this was for something more than just a round of Golf.

On Thursday 19th April, we held the AOP Spring Client Cheese & Wine night, courtesy of Jones the Grocer at Emirates Golf Club.

Having held the event in December 2017 we chose a new venue & partner, offering a varied experience of bites, grapes and live music to set the mood and give something back to our loyal clients.

With an unlimited cheese board consisting of Manchego, Brie De Meaux, Blue De Caisses, Buche Jacquin Herbes and Keen’s Cheddar. Flavours that were soft, strong and bitey and a fine selection of Fondue with Breads, Grisini and Antipasti there was enough to satisfy even the biggest of appetites.

This was all washed down by a wine selection that didn’t disappoint with Whites giving subtle taste and zesty flavours from Chardonnay to Sauvignon and Semillon. Bold Reds from Merlot, Shiraz and Cabernet hitting the spot with big fruity undertones. Also, a Zinfandell that was like a glass full of strawberries, whatever your taste there was something for everyone.

The ambience was ever flowing with a live band giving us a twist on modern Jazz and funky covers. There were even a few movers and shakers at the dancefloor! The setting was great and the people were wonderful. A fantastic evening enjoyed by all, with a request for the next one to be sooner rather than later.

“A bottle of wine contains more philosophy than all books in the world” – Louis Pasteur

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Movember: The Critical Matter of Critical Illness Cover

 

‘Doing our bit’ is extremely important to most of us. We love taking part in worthy causes and none more so than those relating to health and well-being. These days it seems there’s a worthy cause to be supported every day of the year. October’s breast cancer awareness month saw millions of women across the globe come together to ‘do their bit’. Similarly, the month of ‘Movember’ sees men from all walks of life, from all over the world doing their bit and growing beards to promote awareness of male diseases such as prostate cancer, testicular cancer and male suicide. These illnesses are more common than most people realise, and raising awareness is crucial in reducing the number of preventable deaths.

Both campaigns have been phenomenally successful in raising the profile of these health issues and have united people in their efforts. But think on this…when the month is over and the hype of each campaign inevitably fades, what can you do to ensure that these diseases don’t impact on you and your family? How will you ‘do your bit’?

The good news is that due to advances in modern medicine, more people are living longer and surviving critical illnesses like these. But, as with any serious illness, there can be a long road to recovery with many people facing crippling medical bills and numerous day-to-day expenses. In instances where there is no income, this can eat into, and sometimes wipe out, a family’s life savings.

As 2017 draws to a close and we begin to contemplate our family lives in 2018, Alpha draws your attention to the importance of the correct cover for these types of diseases. Critical illness cover is designed to protect you and your family from the impact of illnesses such as cancer, heart disease, stroke and provide financial security during a time of crisis.

When you have critical illness cover, if you or a family member are diagnosed with a life-threatening illness, your policy will pay out a lump sum. You define how much that lump sum is when you take out a plan. The money is tax free and can be used in any way you like. It could enable you to stop working or go part-time, clear your mortgage or pay for specialist medical care.

Everyone should talk to a specialist adviser before choosing a policy. This will ensure you get the best rate and help you decide what will be an adequate amount of cover for you and your family’s needs. The process is straightforward and typically comes with a free medical examination. It can even include free life cover when you take out certain policies.

The bottom line? Having this cover in place will give you the peace of mind that you need during a potentially stressful and traumatic time.  At Alpha, Critical illness is a critical matter. Are you ‘doing your bit’?

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