We have all heard about the importance of a portfolio that is diversified but how diversified are you really? I was looking at my pension portfolio just yesterday and was reflecting on the fact that my advisor has said that I do indeed have a diversified portfolio, and yet when I look I have about 85% of them in equities (albiet in different parts of the world), another 10% in Government bonds, and the final 5% in cash.
Yet how diversified am I? If there is a hiccup between President Trump and President Xi Jinping then the equities markets of not just China and US are hit but it filters out to the entire world as all of the markets are so interlinked that they can virtually be regarded as a single entity.
Coupled with this is the bond market. The bond market is also affected by the equities market – to some extent it is a counter-balance as one goes down the other goes up, but this is not a perfect balance, so you are not hedging your bets. The behaviour of the bond market is exactly the same as it was just before the crash of 2008. Now, as I always say, past performance is no indication of the future, but it brings me back to my point about diversification.
So, what have I done about it? Well, I haven’t closed my pension and put it all in cash under the bed. What I have done, however, is to start truly diversifying my portfolio. I started with Crypto-currency (just a small play as the wild swings in value worried me) and I invested in Apex Algorithms. That was before I met the team and started working with the founder as the Managing Director. The nice thing about my investment (which still looks on track to return around 30% tax-free this year) is that sports match betting gives me true diversification of my portfolio. It is not connected to anything that may happen on the global stage and is only exposed to a very small number of variables compared to trying to predict the price of stocks and shares.
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Paul Northcott is the Managing Director for Apex Algorithims.