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According to the Bank of England, the UK is well on the way towards securing a full economic recovery. This is reflective of the wider global economy, which is also experiencing tangible growth amid a back-drop of geopolitical disputes and social unrest. While investors may be in relatively celebratory mood at the state of the economy and the financial markets, however, it is important that they take steps to optimise their returns over a prolonged period of time.

The Importance of Diversification and Understanding Market Cycles

More specifically, investment experts Killik recommend that comprehending existing market cycles and diversifying successfully is absolutely critical to generating viable returns as an investor. It is similar to the challenge that seasonal business owners face, for example, as they must strive to diversify their operations the type of service that they deliver or run the risk of losing valuable revenue during the summer or winter. This is why successful business owners with seasonal ventures always branch out into new markets and products at different times of the year, so they can maximise their earnings throughout the course of a typical twelve month period.

A similar principle should be applied by investors, although in a slightly different way. The key for them is to understand the cycles that influence individual markets and the underlying rules that govern change, before distributing their capital across multiple products, assets and derivatives. This requires both knowledge and a certain level of determinism, as these attributes enable investors to successfully forecast trends and potential issues before they begin to cause significant depreciation in the market. It is not simply enough to diversify because you know this is the right thing to do, as you must first establish a viable and well-thought out strategy.

The Bottom Line

The key with this process is to understand that it takes time, as you develop an in-depth understanding of the market and a true traders’ instinct. It is only through application, concerted periods of learning and practice that you can achieve genuine knowledge, which can subsequently be used to diversify your portfolio investment strategy.

Timing is also crucial, in terms of buying, selling and choosing when to enter a specific marketplace. If you make your move when the market is about to depreciate or stagnate, for example, you may ultimately lose money through diversification and undermine your long-term investment goals. With patience and a willingness to learn, however, there is no reason why you cannot thrive in the financial markets and create a diverse investment portfolio.