With the beginning of 2022, investors’ attention turned to the monetary policies of central banks amid rising inflation around the world and increasing interest rates.
While the focus remains on central banks and their decisions, investors are also watching the Russian-Ukrainian conflict, the confrontation between Russia and the West, and the fate of oil supplies around the world.
Currently, this geopolitical uncertainty affects the financial markets, but successful investors develop diversification-based investment strategies that protect them from uncertainty and market volatility.
Diversification is an investment approach that reduces portfolio risks and enhances its returns by distributing investments across different financial instruments.
Returns from different sources are a cornerstone of good diversification, and diversification leads to avoiding losses and portfolio stability.
Diversification is not achieved by a large number of investments, but rather by investments whose risks are not related to each other; Investing in a wide range of asset classes that are not correlated with risks and returns such as private equity, private real estate, private credit and hedge funds, and geographical diversification is also important to reduce geopolitical risk.
Usually, increasing returns with increasing risks, the balance between risks and returns is a known rule, and diversification helps reduce risks and increases returns. The benefit of diversification is therefore an improvement in return in relation to risk.
Investing in one asset class, geography, or commodity increases risk, while investing in a group of assets mitigates it. Diversification follows the saying ‘don’t put all your eggs in one basket’. Portfolios with high-quality assets from different market segments and geographies are less vulnerable to shocks and therefore have lower risks and higher returns.
The strategic mix is important, according to The Family Office, which specializes in wealth management in the Gulf region, and this combination of asset allocation according to each investor’s time horizon and risk tolerance. The company’s global reach also allows for asset classes that were previously exclusive to major investors only, such as private markets investments.
The Family Office stated that it launched in early 2022 a digital wealth management platform in the Gulf Cooperation Council countries that provides access to global investment opportunities in private markets, builds a customized portfolio and visualizes its performance for more than 10 years.