Clients sometimes ask us how we built the Stockspot portfolios, and why we selected 5 assets to invest in rather than 2, 3 or 10!
It comes down to the purpose of the Stockspot portfolios which is to maximise returns for each level of risk. Five assets allows us to give clients the best possible combination of returns, risk and costs.
To do this we leverage the benefits of diversification. Diversification simply means that by combining investments with different characteristics you can improve the quality of returns in your portfolio.
Quality of returns is measured by how much risk you need to take to earn a certain return. Since all investing involves taking some risk, the aim is to minimise the risk you need to take to earn the return you want. Diversification across assets enables you to take less risk to earn better returns.
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