Investing: What Warren Buffett is ‘really saying’ when it comes to diversification

Investing: Expert explains the ‘one golden rule’

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While capital is at risk, investing at any age is more likely to grow one’s wealth than not investing at all. Exploring investment options can be daunting, especially if one has never looked into it before.

So, it’s important to seek advice from professionals as some investment strategies come with high risks.

On AJ Bell’s’ Money and Markets podcast, Dan Coatsworth gave his golden rule for risk takers who are new to investing.

He said: “I would say that it is diversification.

“Warren Buffett said, ‘Diversification is protection against ignorance’.

“What he was really saying is that if you’re not 100 percent confident in investing, then actually spreading the risk and having a diversified portfolio is a really sensible thing to do.

“Even experts are not truly 100 percent confident on investing, so novice investors shouldn’t feel ashamed that there is a bit of uncertainty there.”

Mr Coatsworth continued: “You can achieve diversity with a small number of collective funds as it’s quite difficult to receive it by buying directly into shares.

“Or low cost multi asset funds which are aimed at giving a very diverse range of asset types and geographies.

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“As we know one asset class will rise in value and another will typically fall so you can get the shock absorber approach of going down the multi asset route aka diversification.”

With inflation predicted to rise to four percent by the end of the year, and savings interest rates at an all-time low, Britons may want to think about how to make the most of their money.

Investing into anything can be a big risk, especially without knowledge of where to put one’s money, when to put it there and the downfalls that could arise.

Being able to make money work and grow for the future is a life skill that one should aim for so it’s important to ensure they have the necessary information to at least start the investment process.

Some people have taken steps to put their money into stocks and shares such as an ISA or a pension as there are guaranteed returns however there are conditions when investing into these.

Choosing an independently recommended share dealing account and using a stocks and shares ISA offers a way for one to invest and buy shares with a reliable platform in a tax-efficient way.

Even with all the research, the value of investments can go down as well as up, so it’s vital to have a solid plan and stick to it.

For beginner investors it’s important to realise what their end goal is for their investment.

Whether it be to fund their retirement, save for their first house or better their financial wellbeing.

Clearly defining this goal will reveal whether an investor should look to invest passively or actively.

Investors should also consider their current financial state.

It is advised that before making investments, people should try and clear their debt first.

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