Surely we have all heard that saying “all your eggs ever goals in one basket.”

This will usually summarize, among other things, the desirability of diversifying our investment portfolio in order to reduce the inherent risk to it. But what is and what is not diversify?

The idea of diversification, at least formally, is derived from the modern theory of investment, raised initially in the 50s by the economist Harry Markowitz.

In his doctoral thesis, Markowitz said that instead of measuring the risk of each instrument in particular, investors should assess the risk of their entire portfolio.

In this way, decisions about buying or selling a particular instrument should be based exclusively on the impact that this decision will have on the risk of the entire portfolio.

Some investors have the idea that diversification means only, not to invest in one instrument, but in several.

However, this is not true. The diversification must have a sense: it must be appropriate to our risk profile, should reduce and not increase the risk that we assume so.

Obligado, analyze

In fact, the process is much more complex and requires careful analysis of the factors that influence our decision-making.

The idea behind diversification is, indeed, have in our portfolio of different asset types.

As the interest rate paid on debt instruments typically fall when stock prices are going to rise, an attempt to build a portfolio that has both types of assets, to ensure that at least a portion of our portfolio This behavior in a positive way.

Another way to understand the diversification is to buy the same kind of instruments that are not affected by the same variables.

For example, if you bought shares of Wal-Mart, Soriana and Comercial Mexicana, for example, would not be doing an adequate diversification, as all these companies belong to the same sector (commercial).

However, if you buy shares representing such diverse industries as entertainment, telecommunications, mining, construction and commercial, will likely reduce the total risk in our portfolio.

Careful allocation

Based on what we have said, we can say that diversification means, first, a thorough process of asset allocation in line with the overall level of risk we assume. This means we should determine our rates of investment in different markets and asset classes to have access.

Subsequently, in accordance with our perception of the economic outlook, select tools and private sectors to integrate our portfolio.

The ultimate goal is to have an integrated portfolio of assets with different types and sectors, so that, given the level of risk we assume, to maximize the performance potential of our portfolio.

Strategies to gain more exposure pose

Some specialists prefer to work with non-diversified portfolios, which despite having a higher risk, often also have a higher yield potential.

In this sense, there are several investment strategies that are based on concentrating investment in a single instrument or section.

One is the purchase of two or three actions that are technically attractive, trying to capitalize on rapidly generating profits.

Another is buying more shares in the same sector of the economy, which is perceived as the most favored because of the economic conditions of the moment.

Whatever decision we take, we must understand that in the medium to long term, offers a diversified portfolio yields much more consistent and less volatile.