Don't put all your eggs in one basket: diversification and asset allocation

Diversification is the closest thing investing has to a free lunch. Spreading your money across different investments can reduce risk without necessarily giving up much return - because when some holdings are struggling, others may be doing well. It is a simple idea that quietly does a lot of work.

Imagine putting everything into a single company's shares. If that company thrives, wonderful; if it stumbles, you could lose a great deal. Now imagine holding hundreds of companies across different industries and countries. One firm failing barely registers. That is diversification: reducing the impact of any single thing going wrong.

Beyond individual holdings, the bigger lever is 'asset allocation' - how you split money between the main types of investment. The main asset classes behave differently:

• Shares (equities): ownership stakes in companies. Higher potential growth, but more volatile.
• Bonds: loans to governments or companies that pay interest. Generally steadier, usually lower returns.
• Property and other 'real assets': can offer income and a degree of inflation protection.
• Cash: stable and liquid, but vulnerable to inflation over time.

The mix you choose - say, more in shares for growth, or more in bonds and cash for stability - has a major effect on your experience as an investor. Asset allocation is one of the main factors shaping a portfolio's expected return, volatility and overall level of risk.

Diversification works best when your holdings do not all move together. If everything you own rises and falls in lockstep, you have variety without protection. Combining assets that behave differently in different conditions is what smooths the ride. This is why a well-built portfolio spreads across regions and asset types rather than piling into whatever has done well recently.

UK investors often hold far more in UK companies than the UK's share of the global equity market would suggest. It feels natural to back what you know, but it concentrates your fortunes in one market and one currency. A globally diversified approach spreads that risk more widely.

Over time, the parts of your portfolio that grow fastest can come to dominate, quietly increasing your risk beyond what you intended. Rebalancing - periodically bringing holdings back towards the target mix - is principally a risk-control discipline. Its purpose is to restore the intended asset allocation and overall level of risk, not to guarantee better returns.

We design a diversified, globally spread portfolio around your goals and rebalance it over time so your risk stays where you intended.