What is diversification? The basics

Important information - the value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

• Read: What risks come with investing? The basics 

How diversified is your portfolio?

If you’re already investing, it’s worth reviewing your portfolio two or three times a year to check it still lines up with your goals and circumstances. When you take a closer look, ask yourself:

• Am I holding a mix of investments? (such as equities - shares and funds, bonds and alternatives)
• Am I too exposed to one area of the world?
• Am I focused on a particular sector?
• Do I understand the underlying holdings in my funds?

If you’re unsure what you’re invested in, our X-Ray tool can help you see ‘under the bonnet’ of your portfolio. It gives you a breakdown of what and where you’re invested.

1. Log in on a desktop.
2. Click on ‘account holdings report’ in the quick actions tab on your account summary page.
3. Select a benchmark to compare your portfolio against (e.g. ‘UK Large Cap Equity’ or ‘S&P 500’). 
4. On the analysis report page, click ‘Export’ (top right) to generate the full X-Ray report. 

What about the 60/40 rule?

Many experts used to believe that a well-balanced portfolio should hold 60% shares and 40% bonds. It was an investment strategy that served many investors well for years. This approach worked well when shares and bonds tended to move in opposite directions. When shares fell, bonds often rose, and vice versa.

More recently, that relationship has been less reliable. For example, in 2022 both shares and bonds fell as interest rates rose sharply in response to high inflation.

Some experts are challenging this old investing rule of thumb and believe the traditional 60/40 split may not suit everyone today. It still works for some investors, but there’s no one-size-fits-all approach.

Building a diversified portfolio

If you’re not sure where to start, ‘multi-asset’ funds can help. These funds hold a mix of assets chosen by experts with a specific investment goal in mind. They aim to provide diversification within a single investment.

You can choose from thousands of funds and individual shares, depending on your attitude towards risk. Whether you’re adventurous or cautious, it’s important to decide how much risk is right for you.

Here are two tools that may help:

• Select 50 - This is a list of our favourite funds, selected by experts. The list contains active and passive funds, investment trusts and exchange-traded funds (ETFs). You can view the Select 50 list here.
• Navigator - this tool will pick a diversified fund for you that’s managed by our experts, based on the level of risk and management style that you’re comfortable with. You can learn more about Navigator here. 

Looking for that next level of support?

Managing your own portfolio isn’t for everyone, especially when it comes to thinking about how diversified it is.

If you’ve got over £100k to invest (including pensions) our financial advisers can offer a paid-for personal financial recommendation. Whether it’s for a one-off event or ongoing support, you might like to learn more about financial advice and whether it’s right for you. Read about financial advice.

You also automatically qualify for our Wealth Management service if you’ve got over £250k invested (including pensions). As a wealth customer you’ll have access to a range of exclusive benefits including your own dedicated relationship manager and a reduced service fee. Learn more about Wealth Management.

• Read: What is volatility? The basics
• Read: How to build a portfolio - with examples
• Read: Should I wait to invest?