hr: Money

It’s good to keep a diversified portfolio while investing. The idea is to spread your risk so that when environmental conditions make one underlying asset perform poorly, that same condition causes the other sort of underlying asset to become more valuable.

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This is usually born out in the debt versus shares situation. It is well known that the prices of these two instruments move in opposite directions, and the reasons are the ones stated above, namely that they perform well in different environments. While stocks are good for you when the market is bullish, the debt funds are good for you when the economy is down, providing you with steady income that you can rely upon.

But the same principle holds for within shares as well. Shares are subject to different price fluctuations based on the industry in which they work. In concordance with this logic, each share has a beta value, which is a measure of the risk of the share. The risk is a measure of how wildly the share price fluctuates. But when the risk is high, the returns are high as well. Low risk shares, hardly fluctuate at all, but their yield is low. They are the dependable shares. Based on your investment horizon, you will want to decide what percentage of your stock portfolio you want to allot to each of these different types.

It is best to have a healthy mix of both so that you can hedge your bets in difficult times like these.