The recent failure of Silicon Valley Bank (SVB) has sparked discussions about the importance of diversifying our retirement portfolios. SVB had been a key player in providing finance and services to technology startups for many years but its collapse due to heavy investment in treasury bonds has highlighted the risks of not diversifying investments. This event serves as a lesson for individuals to diversify their own portfolios, regardless of the asset class.
The Importance of Diversifying Retirement Portfolio
Diversification involves spreading investments across various asset types to limit exposure to any single asset and reduce overall portfolio volatility and risk. This practice is essential in building a sound investment portfolio for retirement. Different asset classes perform differently at different times, so a diversified portfolio ensures that a decline in one investment is balanced by growth in another. Without diversification, a value fall in one asset cannot be balanced out by growth in another, resulting in substantial permanent loss. This is particularly problematic for retirees who depend on their savings and investments to cover their living expenses.
Aggregate Asset Management (AAM) believes that a diversified global portfolio is the optimal method for capital preservation, particularly for retirement planning. To achieve this, AAM spreads its investments across nearly 1,500 stocks to minimise over-concentration risk and ensure good returns. Furthermore, AAM utilises an artificial intelligence (AI) machine called Deep Deep to enhance its decision-making process. Check out how Deep Deep performs in a Man Vs Machine Challenge here.
In addition to diversification, individuals should also focus on growth investments in their earlier years to take advantage of the power of compounding. Delaying investment can lead to missed opportunities for compounding, which can greatly boost retirement savings. Starting early in investing in diversified assets is crucial in building a strong investment portfolio for retirement.