My personal favourite is how the diversification tips and tricks of investing are remarkably similar to building a strong fantasy football team; pick the best players you can find, make sure they each have a role to play, and only switch them up when they've done as much as you think they can for your team.
Don’t rely on a star player
One big-name striker does not guarantee a successful team. Out of hundreds of thousands of possibilities, the odds of you selecting the perfect investment that delivers each year are against you. This is where diversification across investment types such as stocks, bonds, property and even plain old cash as well as diversification across geographies can help propel your portfolio into the big leagues.
Building a strong foundation of reliable investments could help ensure that even when a sector or market doesn’t perform as well as you thought it might, the hit to your portfolio is not as bad as it might have been. Similarly, spreading your risk across investments could reduce volatility – the constant ups and downs of markets which can make many investors nervous about their portfolio – and help keep you invested for the longer term.
Avoid the home bias
We all know how tempting it can be to stick to the comfort zone of choosing players from the team you know and love the most. In investing terms, this might mean going with the big name UK stocks with which we’re already very familiar. But this bias to your 'home team' can prevent you from gaining the benefits of potentially high-performing investments found overseas.
To take some of the different stock markets as an example, the UK’s FTSE All Share index has had a very successful run over the past decade but investors who chose to put their stock investments in just this market would have missed out on the stellar run of the US market – perhaps through a US-focused index such as the S&P 500. Investing internationally would also give you exposure to movements in the exchange rates, however this could be a benefit or disadvantage to your money depending on these move in relation to your home currency.