The power of diversification: How to build a strong resilient Investment portfolio

This blog post is a guest article by Selma, our peers and partners in the shared passion for diversification. Selma is a Swiss fintech authorised as independent portfolio manager by FINMA, that helps you to diversify your traditional investments. In the end of the article you will find a nice gift they prepared for our community.

In the world of investing, the saying "Don’t put all your eggs in one basket" is more than just good advice — it's a cornerstone of building a resilient, successful portfolio. This principle, known as diversification, means spreading your investments across different assets to reduce risk and increase your potential for stable, long-term returns. But what exactly does diversification mean, and why is it so essential for long-term investors? 

In this article, we’ll explore why a diversified portfolio can be one of the smartest strategies for your financial future, and what simple solution helps you create a diversified portfolio both easy and personalised.

Why diversification matters 

Financial markets can be unpredictable. Different types of investments, like stocks, bonds, or real estate, don’t all react the same way to market changes.  Diversification means spreading your money across different types of investments to reduce risk while also increasing your chances of achieving steady, long-term returns. Instead of putting all your money into one place, you create a mix that can handle ups and downs better.

1. Risk reduction with variety

It’s easy to look back and think, "If only I had invested in that one winning stock." But the reality is, predicting which company will thrive 5, 10, or 20 years from now is nearly impossible. Take Nokia, for example. In the 1990s and early 2000s, it dominated the mobile phone market, and many believed its success was unshakable. Yet, markets evolve, industries shift, and even leaders can fall behind.

Relying on single stocks might seem appealing, but for long-term investors, it’s a risky bet. By spreading your investments across a mix of assets, you create a portfolio that’s more stable and poised for long-term growth, no matter how the market changes.

When you diversify, you distribute your investments across various asset classes, such as stocks, bonds, and commodities. Each of these asset classes responds to market forces in different ways. For example, while stock prices may fall during an economic downturn, bonds often remain stable or even increase in value. By diversifying, you can create a balance that helps to cushion the impact of any one asset class underperforming. 

2. Smoothing out returns over time

Investing isn’t just about celebrating the good times — it’s also about staying steady during the tough ones. Different asset classes and regions will often perform well at different times, and this variation can help smooth out your returns over time. 

The benefit of diversification is that you don’t need to predict today what will perform best 10, 20, or even 40 years from now. By spreading your investments across a mix of assets, industries, and regions, you reduce the risk of guessing wrong. The stronger-performing investments can balance out the weaker ones, keeping your portfolio more stable over time and helping you stay on track for the long term.

3. Exposure to global markets and industries

A diversified portfolio also extends beyond simply holding different types of assets. It often includes investments across multiple industries and geographic regions. This global reach allows you to benefit from growth in various sectors around the world and reduces dependence on the economic health of a single country or industry. 

For instance, an investor focused solely on the technology sector in one country would be highly vulnerable if that industry or market experiences a downturn. On the other hand, someone with a globally diversified portfolio can benefit from growth wherever it occurs—whether it's in European markets, Asian markets, or emerging economies.

4. Reducing emotional decision making 

Investing can be an emotional experience, especially when markets are volatile.  Fear, panic, greed, and overconfidence often lead to reactive decisions that derail long-term plans. When your portfolio is narrowly focused on a few stocks or sectors, it’s easy to feel overwhelmed by short-term events and make impulsive choices.

Diversification offers a built-in level of stability, which can make it easier to stay calm during market swings. When your investments are spread out, you may be more willing to wait out temporary downturns, allowing your portfolio to grow over time without being derailed by short-term fluctuations.

Building your personalised and diversified Portfolio 

Understanding the importance of diversification is one thing; building and managing a diversified portfolio is another. This is where Selma Finance can help. As a robo-advisor, Selma creates personalised, globally diversified investment plans aligned with your financial goals and risk tolerance.

Personalised and with your goals in mind
Selma’s approach ensures that your portfolio isn’t just diversified but tailored to you. By understanding your goals and lifestyle, Selma helps balance risk and growth without over-relying on any one asset or region.

Global reach without stock picking
Selma invests across global markets and asset classes, offering exposure to growth worldwide while protecting you from the risks of concentrating in one company or industry.

Expert Management and AI-powered insights
With Selma’s AI-powered advice and expert monitoring, your portfolio adjusts with market changes, staying aligned with your goals and evolving needs over time.

Conclusion: Diversification is the foundation of a resilient investment strategy

In investing, diversification is more than just a strategy — it's a foundation for stability, resilience, and growth. By spreading investments across different asset classes, regions, and industries, investors can reduce risk, smooth out returns, and enjoy a broader reach of growth opportunities worldwide.

If you're looking to build a diversified portfolio tailored specifically to your financial goals, Selma Finance can help make that process simple and effective. With personalised, globally diversified portfolios, expert management, and the latest in AI-powered financial advice, Selma makes it easy to start investing with confidence.
With the promo code “Splint24” you will receive CHF 50 as a top-up on your portfolio.