If you think that owning shares in each of the four big banks represents diversification and reduces the amount of investment risk in your portfolio, think again.<\/p>\n
BlackRock head of Australian fundamental active equities Charlie Lanchester says an over-exposure to banks \u2013 and to the same risks as affecting those banks \u2013 is one of the biggest issues currently facing Australian investors.<\/p>\n
Failing to properly diversify, and having too much money exposed to one stock, one sector or one risk factor, is called \u201cconcentration risk\u201d, and investors should avoid it.<\/p>\n
In a new Money Masters interview<\/strong><\/a>, Lanchester says economic factors \u2013 like interest rates \u2013 that can affect property investors also can affect the banks, which lend money to those same investors, and what investors should be thinking about to avoid unintended or hidden risks.<\/p>\n \u201cIncreasingly, the four banks are as one, and very much focused around the same theme,\u201d Lancaster says. \u201cAt the same time\u2026many investors in Australia have investment properties as well, which is effectively the same trade.\u201d<\/p>\n A typical retail investor\u2019s share portfolio is invested heavily in the big four banks, Lancaster says. But the aim of diversification is to ensure that no single stock or sector or risk can unduly affect the overall value of the portfolio.<\/p>\n Some components of a portfolio should perform well when others are not, to help minimise volatility \u2013 or the variability of returns \u2013 and to help make sure that for a given level of investment risk an investor is getting the best possible return. Or, conversely, that in achieving a particular return, an investor is not taking too much risk.<\/p>\n Getting this risk and return trade-off is the holy grail of successful investment.<\/p>\n <\/p>\n The opinions expressed in this content are those of the author shown, and do not necessarily represent those of No More Practice Education Pty Ltd or its related entities. All content is intended for a professional financial adviser audience only and does not constitute financial advice. To view our full terms and conditions, click here<\/a><\/strong>.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" If you think that owning shares in each of the four big banks represents diversification and reduces the amount of investment risk in your portfolio, think again.<\/p>\n","protected":false},"author":12,"featured_media":10743,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"footnotes":""},"categories":[161],"tags":[],"experts":[494],"companies":[120],"focus_area":[],"acf":[],"_links":{"self":[{"href":"https:\/\/www.nmpeducation.com.au\/wp-json\/wp\/v2\/posts\/10742"}],"collection":[{"href":"https:\/\/www.nmpeducation.com.au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nmpeducation.com.au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nmpeducation.com.au\/wp-json\/wp\/v2\/users\/12"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nmpeducation.com.au\/wp-json\/wp\/v2\/comments?post=10742"}],"version-history":[{"count":4,"href":"https:\/\/www.nmpeducation.com.au\/wp-json\/wp\/v2\/posts\/10742\/revisions"}],"predecessor-version":[{"id":15743,"href":"https:\/\/www.nmpeducation.com.au\/wp-json\/wp\/v2\/posts\/10742\/revisions\/15743"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.nmpeducation.com.au\/wp-json\/wp\/v2\/media\/10743"}],"wp:attachment":[{"href":"https:\/\/www.nmpeducation.com.au\/wp-json\/wp\/v2\/media?parent=10742"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nmpeducation.com.au\/wp-json\/wp\/v2\/categories?post=10742"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nmpeducation.com.au\/wp-json\/wp\/v2\/tags?post=10742"},{"taxonomy":"experts","embeddable":true,"href":"https:\/\/www.nmpeducation.com.au\/wp-json\/wp\/v2\/experts?post=10742"},{"taxonomy":"companies","embeddable":true,"href":"https:\/\/www.nmpeducation.com.au\/wp-json\/wp\/v2\/companies?post=10742"},{"taxonomy":"focus_area","embeddable":true,"href":"https:\/\/www.nmpeducation.com.au\/wp-json\/wp\/v2\/focus_area?post=10742"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}