The Nigerian Exchange (NGX) has emphasised the need for diversification of portfolios by investors to ensure enhanced return on investment.
Divisional Head, Trading Business, Nigerian Exchange (NGX), Jude Chiemeka, who spoke at the Retail Investors Workshop organised by the NGX and ARM Securities Limited, said as a multi-asset exchange, the NGX had various products for every investor regardless of what their investment goals, risk appetite or return expectations might be, listing the products as equities, fixed income, Exchange Traded Funds and derivatives.
He explained that portfolio diversification is the process of investing one’s money in different asset classes and securities to minimise the risk of the portfolio.
Mutual funds, bonds, Equity Traded Funds as well as other asset classes such as real estate and pension plans are other investments they can consider. Investors are encouraged to ensure that the securities vary in risk and follow different market trends. A typical example is the general trend where the bond and equity markets have contrasting movements. By investing in both these instruments, investors can offset any negative results in one market by positive movements in the other.
“A sound diversification strategy, adding Index or bond funds to the mix provides ones portfolio with the much-needed stability. Also, investing in Index funds is highly cost-effective as the charges are quite low compared to actively managed funds. At the same time, investing in bond funds hedges your portfolio from market volatility and uncertainty and prevents gains from being wiped out during market volatility,” Chiemeka said.