The STRIDE Blog

Choosing an Investment Strategy: Risk and Diversification

stride-choosing-an-investment-strategy-risk-and-diversification-featured.jpgChoosing where and how to invest isn’t the easiest venture in the world. In fact, it can often be a complex spiral of confusion, leading you to make bad decisions. That’s why we’ve created this infographic, to help you choose an investment strategy that’s right for you. 

Many questions should float around when you’re choosing to invest: How much do I want to invest? Where can I get the best return? What can I spend? How much time am I willing to put in? How much risk am I prepared to stand for? The answers to these questions are important in choosing the correct investment strategy for you, which is why our easy-to-understand infographic is so necessary.  

To make your investment choices easier, we have taken the time to analyse how STRIDE, fund managers and index funds hold up against each other and present this information in a brief infographic. As part of the infographic, we researched the risks and diversification of these three strategies and would love to share our findings with you. 

The Risks and Diversification of Investment Strategies 

1. Fund Managers 

For this section we analysed the data from BlackRock, Vanguard Asset Management (UK and USA/EU), State Street Global Advisors and Carl Icahn’s actively managed mutual funds (an investment program funded by shareholders that trades in diversified holdings and is professionally managed). Below are the averages of this assessment. 

Our findings concluded that fund managers carry medium-high risk over your investments, mostly because you’re not in control of your investment. You have to rely on another individual’s informed opinion, which ultimately means that a good manager will make good decisions and bad manager will make bad decisions for you.  

This risk is coupled with a medium amount of diversification, but again this is very much dependant on your manager and their preference in managing a fund. Generally, fund managers don’t like to diversify investments too much, and rather choose a couple of larger securities. 

2. Index Funds 

For this section, we analysed the average performances of the S&P 500, FTSE 100 and the Euro 600. 

Index funds are low risk investment options, as the market will inevitably rise and you will make some return. However, there is also very little, or no, diversification when you invest in an index fund, and that’s because all your money is tied up in a single index. You can’t decide where to invest your money or choose stocks that fall outside of your index, and so you can’t protect yourself from a particular industry or geography.

3. STRIDE 

STRIDE is a stock picking and portfolio management tool, and the overall winner when it comes to risk and diversification.  

The risk with STRIDE is largely up to you, as you are in full control of your portfolio. Being a low to medium risk option, STRIDE encourages wide diversification, because of unforeseen circumstances which can cause stock markets to spin out of control. And so of the three strategies, STRIDE is the most diversified in order to protect long-term investment strategies.  

Each investment strategy differs based on its specific financial costs and rewards, including how diversification and risk play a part in this. 

So, learn which investment strategy is right for you by downloading our infographic or reading our eBook below.

STRIDE's practical guide to value investing for beginners: starting your portfolio 

Topics: Portfolio Management

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3D Value Investing: Triangulating The Best Investment Targets

3D Value Investing uncovers the best businesses for investment, the fair value of those businesses and the best times to buy in and sell out. This approach to long-term investing results in higher returns with lower risk.

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