History can provide several examples that show the old adage about eggs and baskets to be true – spreading risk has always made sense
The Poseidon misadventure
Fifty years ago, the share price of Australian nickel mining company, Poseidon, rocketed from A$0.80 to $280.00 over the course of a few months before profit-taking began and the share price crashed. Receivership followed in 1974. Twenty years later, another ‘rising star’ of the stock market burned out. Minor fashion house, Polly Peck, was acquired by new owners in 1980 and used as a vehicle for ventures in Northern Cyprus. After a series of deals in the 1980s, the growth was such that the company’s shares entered the FTSE 100, before being suspended in September 1990 amid fraud allegations.
Fear of missing out
Before Poseidon and Polly Peck, there had been plenty of previous warnings about the risk of blindly following the herd, on an opportunity ‘not to be missed.’ The South Sea Bubble ruined many British investors as far back as 1720.
Diversification is right for everyone
As a general principle, any investment in shares needs to be spread across different areas, such as industry sectors and geographical regions, so that if one share price slumps it only affects part of your overall portfolio. A sensible way to achieve a spread of risk is through collective investment schemes with a risk profile to match your objectives and needs. We can advise on the investment strategies and products most appropriate for your individual circumstances.
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