Diversification is an investment strategy designed to reduce exposure to risk by combining a variety of assets, which are unlikely to all move in the same direction.
Portfolio diversification must take into account at least two factors.
- Investment Horizon. A person's choice of investment should depend on how long she intends to keep her investments. For example, if the investor wants to sell the assets in one year, then the investment should be planned using short to medium term financial instruments.
- Risk Level Return Expectations. Investor must know what type of risk tolerance she can have towards the investment and how much of expected return she aims for to afford that risk.This step is important, because it will help facilitate the types of equities that are suitable to her needs and help her avoid taken unnecessary risk. Macroaxis allows these principles to be applied to different equity types including stocks, funds and ETFs.