Everyone knows the old adage “never put all your eggs in one basket,” which refers to the wisdom of not putting everything into one place. After all, it is only wise to scatter your eggs among a number of baskets so that if one basket breaks, you still have a few baskets of eggs to bring home.

This concept is also true when it comes to investments. In the past, we have dealt with investment options and how volatile most investment instruments are. Most securities are subject to the ups and downs of the market, which can cause the value of your invested money to either substantially increase or decrease. Even real estate assets are subject to market fluctuations, and when the real estate market tumbles, assets that are tied into real estate properties go down rapidly even before investors can move to recoup their investments.
Take the case of the recent collapse of the finance sector. In a broad sense, most of the financial institutions that collapsed had a lot of their assets tied to real estate. As the real estate sector tumbled, it brought down with it all the precious investments those financial institutions tied into it. Hence, one of the biggest bailouts the United States government had to make in its financial history.

This kind of financial situation could also happen to individuals, which is why it is important to assess how your finances look. Are all your liquid assets placed under only one type of investment? Is your money stashed away in just a low-yielding savings account? Or are you betting all your investments on real estate? If you find yourself in any of these situations, it’s time to consider diversifying your assets.

Just how important is diversification?

Diversifying your investments offer a lot of benefits. Not only does it create a safety net for your finances so that as one type of investment performs poorly, you can still count on the others in your portfolio.

Let’s say you have an idle savings account that’s earning a miniscule amount in monthly interests. You can allocate several portions of your savings into various liquid investments or securities so that 50% goes to stocks (or in a mutual fund that is invested in stocks), 20% goes to bonds, 10% goes to unit investment trust, and the rest to remain in your savings account. The portion invested in stocks represents the most active form of investment, offering the potential for long-term huge gains. The amount allocated to bonds will provide a fixed income from the fixed rate of return offered by this form of investment, giving you more funds to feed your investment. Unit Investment Trusts or UITs are like mutual funds, except that UITs are created for a specific length of time and it is a fixed portfolio that cannot be sold or bought.

Now is the best time to diversify your investments as the financial sector is gradually recuperating from the financial crisis. Also, due to the recent recession, financial institutions are more cautious of making financial investments that take can a toll on global economies.