Putting all your money into just one investment breaks an age-old rule of investment - "don't put all your eggs in one basket".
Putting your money into several investment types reduces the effect
on your combined investments if there is a downturn in one investment
type. It's called diversifying.
For example, you have some shares and some fixed interest
investments. The interest rate falls, so when your fixed interest
investments come up for renewal you may have to settle for a lower rate
of interest. However, the value of your shares may not be affected in
the same way.
If there is a downturn on the sharemarket, although the value of
your shares might fall, your fixed interest investments are not likely
to be affected.
Buying several fixed interest investments with different terms is
diversifying over time. However, to have the full benefits of
diversification it would be better to buy several different types of
This article was provided by the Securities Commission.
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