There are lots of different type of investments that we can make such as shares, buying a second home, buying art etc and this might make people feel that they should be spreading their money across lots of different types of investments. There are advantages and disadvantage of doing this and it is a good idea to understand these before making a decision. Some of them are listed below.
Spread the Risk
Most of us will be aware of the concept of spreading the risk. This is where we invest our money across different things. This means that if one item does not do well, we hope that the gains made from others will mean that we will be able to still do okay on average. This can mean different things though. It can mean spreading your money across completely different things, so some in property, some in art and some in shares but it could also mean buying several different properties or shares in different companies or in different industry sectors. It is worth thinking about what it means to you and whether you think that it is an effective idea and will be a good technique to spread the risk.
Harder to Research and Track
However. There are disadvantages of spreading your money in lots of different places. It means that you have more work to do with regards to tracking how well it is doing. You need to think about those investments that you are making and review them from time to time. See whether they are giving you the return that you are expecting or whether you are finding that you are not getting back all of the money that you had hoped. It is important to make sure that you are tracking things. You will be wise to do this before you invest any money and track the market to make sure that you are making a wise investment decision before you start. Then keep checking it to see whether you still want to have your money invested in this area. Although investments should be long term, this is still something that is important to do so that you can be sure that you are making the right investments. The more different investments you have, particularly if they are completed different (art, house and shares as compared to shares in different companies) the more difficult it will be to track and make sure that you are doing the right thing. You may have a financial advisor to do this for you, but if you do not and you track it yourself then you will need to give this some thought. Also, even if you do have an advisor, you should still be doing some tracking yourself as you want some control in the decision making with regards to your investments.
Some Need High-Value Investment
It is also worth considering that some products require really high amounts of money to be invested in them. Things like buying a home will need a large lump sum unless you take out a mortgage. This means that it may not be possible for everyone to be able to invest this way. This means that you will need to consider how much money you have and then you will be able to think about what sorts of things you will be able to invest in. You may still be able to spread the risk a little bit, perhaps by choosing a few things, but your options will be more limited. It is wise to think about whether you want similar investments or things a bit different and also how many you think that you can manage.