[Plus Hour Campaign] Quiz 5: How does one build a diversified portfolio?

1. A
2. A
3. C
4. A
5. Having a diversified portfolio means not putting all your eggs in one basket. Instead it is important to explore various investment oppurtunities including stocks, bonds, ETFs, government securities and investment linked policies. For example my personal portfolio includes individual stocks (which I am familiar with or have done my research on), blue chip stocks, ETFs, and government bonds. I also have invested in REITs locally which plays an important role in my investment portfolio. Overally the proportion in each category is quite equal and hence is quite risk averse especially in a bear market.

1. A
2. A
3. C
4. A
5. Diversification is the strategy of adding different assets/instruments to your portfolio in order to reduce or eliminate risks. Building a diversified portfolio would mean that one should invest in low-risk, medium-risk and high-risk investments equally. Low risk investments include ETFs, bonds, T-bills or SBB, all of which does not require you to do much, but will help you to reap investments in passively and in the long run. Medium-risk investments could involve more stable stocks that provide returns on a consistent basis, and stocks that are diversified across different sectors like healthcare, industrial, commercial, finance and properties. HIgh-risk investments could involve investing in stocks that are more volatile instead like crytocurrencies, which is still at its teetering phase now, but may reap higher returns should more people accept it.

1. A
2. A
3. C
4. A
5. As the saying goes, don't put all your eggs into one basket. It's important to ensure that you buy from different asset classes and in different industries/countries. Additionally, in terms of strategy, hedging risk is always a good idea. In terms of building one's portfolio, I think it really depends on each individual's circumstances and resources. For e.g. as a student I started building my portfolio with very conservative purchases that allowed me to make my money work for me while still ensuring that I didn't lose all my (little) life savings at one go. Now, as a working adult, I'm able to take riskier investments while ensuring I have a comfortable pool to fall back on especially in very volatile market conditions.

Q1. A

Q2. A

Q3. C

Q4. A

Q5. Buy stocks from different sectors and country so you are diversified by industry and geography. Within that stock portfolio, allocate no more than 10% to any stock that you might want to buy so you minimise concentration risk. Also invest in less riskier instruments such as topping up your CPF, buying Singapore Savings Bond etc.