Diversification should also be done over multiple asset classes, not just stocks.
September 19, 2019
While ETFs are efficient diversification tools, they neglect smaller companies. Diversification should also be done over multiple asset classes, not just stocks.
Modern Portfolio theory states that you can optimize your risk-to-return ratio by building your portfolio from assets that do not correlate strongly with each other. With bonds, volatility comes from the borrower not being able to pay back the debt. This is tackled by Envestio’s buyback guarantee.
When high-yield corporate bonds are added to a portfolio of stocks, the overall volatility of the portfolio can be reduced, without reducing returns. For me, this is the strongest argument for diversifying into crowdlending instruments such as Envestio – it makes sense from a scientific perspective.
Investing with Envestio is straightforward, but due to the success of the platform, projects get funded very quickly. As it isn’t a completely obvious decision but an investor should consider using the auto investing feature for best diversification.