The analogy we like to make about diversification of assets is that it’s like compiling a whole outfit. You wouldn’t put your socks, shoes, and pants on but leave the house without a shirt or a jacket.
Think of your portfolio the same way. You wouldn’t want to only invest in stocks, or put your money entirely into real estate. That’s not a whole outfit—just the socks and shoes, really.
That’s where diversification comes in—it’s not just finding alternative asset classes and bonds to complement your stocks. It’s shaping a holistic picture, or a complete outfit.
Analogies aside, here’s the basic principle of diversification: it’s ensuring that investors avoid over concentration, or rather, too much of one asset class. At its core, diversification is a way to manage risk.
The idea is to spread out over a variety of asset classes to reduce investment risk. If you’re invested entirely in real estate funds and the housing market crashes, that’s not ideal. That’s why you mix it up, and invest in energy and bond funds and so on and so forth. What you invest in is a whole other blog post.
Ultimately, it’s all about building that complete outfit.
Don’t think of diversification as an investing luxury or an extra step. Think of it as an investing necessity, or as part of the practice of investing. It’s really an essential part of the investment package, much in the way a jacket is an integral part of an outfit on a cold day and shoes are pretty necessary if you expect to go outside.
At Round, we don’t just find you any pair of shoes and an average shirt and jacket to complete your outfit. We find you the best jacket—the one that your half-British friend gets from a supplier in the English countryside because he has an in. Round isn’t just working to diversify your portfolio, we are diversifying with alternative asset classes hand-selected by the top fund managers in the business.
Round is built to manage all your money outside of your checking account. As such, our aim is to provide stability and not add undue risk to your investment portfolio.
Round is diversification, elevated.