Managing and Optimizing Portfolio Diversification

Why Diversify?

A crucial key to long term success in investing is to never discount the importance of portfolio diversification for reducing portfolio risk. By purchasing multiple investments with different performance characteristics, or correlation, you can capture the potential for capital appreciation while minimizing the likelihood that a decline in any one investment or sector will devastate the value of your portfolio.

While diversification doesn’t eliminate market risk (the risk that the market, or markets, as a whole, drop), it does significantly diminish what is called company or sector risk – the risk that one or two stocks or a single sector unduly impact portfolio returns. In addition to diversification by asset class and asset sector, geographical diversification via investing in different countries and locales within a country is another commonly used source of investment (portfolio) diversification.

Diversification Tracking Made Easy

As important as it is to keep track of your portfolio’s level of diversification, it’s not always easy. Every time you make a trade, your portfolio’s composition can change in ways that upset your preferred asset allocation parameters. Additionally, your portfolio’s investment allocation mix can change substantially over time due to variation in the valuation of its holdings.

Portfolio diversification by company and sector

Ziggma’s software clearly displays your portfolio’s diversification across a variety of measures including company exposure, sector exposure, and country exposure. The easy-to-read diversification percentage display allows you to quickly determine your portfolio’s concentration levels in a particular asset, asset group, or sector.

Investment Portfolio Alerts

Ziggma’s portfolio management software allows you to set maximum portfolio weights by single position or by three positions. You can also set portfolio limits by asset class, sector, or country. If your portfolio’s allocation to any of these criteria exceeds the percentage you specify, the software alerts you to that fact.

Portfolio diversification monitoring

You can set the criteria to apply to ETFs by asset class as well as your overall portfolio by asset class. For example, if you have set your single stock exposure maximum to 15%, and the value of your holdings of a particular stock rises above that limit, Ziggma’s software will alert you to that fact. Or, if you had specified that your total holdings of assets in a certain country should not exceed 10%, and appreciation caused that level to be surpassed, an alert would also be sent.

Free up Time for Investment Research

Given the volatility of modern markets, equity investments often move up or down in value rapidly these days, whether in response to company-specific or market moving news. Tracking the impact this volatility has on your portfolio’s diversification profile can be time-consuming.

The investment portfolio alerts provided by Ziggma’s portfolio management software can help you focus on other areas of portfolio management that represent more productive uses of your time.

With Ziggma’s alerts, you don’t have to worry about having to constantly monitor your diversification levels for portfolio risk management purposes. Knowing that the software will notify you immediately if a portfolio weighting violates your specified limits, you can spend your time on tasks that can’t be fully automated, such as investment research.

Ziggma can help there too, with our Stock Screener for evaluating individual equities or our Model Investment Portfolios which include Star Investor Portfolios containing the holdings of portfolios run by investment legends such as Steve Cohen, Dan Loeb and Warren Buffet.

Try Ziggma’s market leading portfolio management software today. Take advantage of the 7-day free trial period. Cancel anytime.

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