When we invest in shares, we can invest in just one company, multiple companies or gain exposure to the whole market (being some 497 companies currently listed on the Australian Stock Exchange – ASX)

The decision to do one or the other will mainly be based on how we balance our thinking between the RISK INVOLVED and POTENTIAL RETURN on the capital we are planning to invest.

Obviously investing in just one company (or 3 to 4 different companies) exposures us to SPECIFIC COMPANY RISK, whereas the investment in more companies DIVERSIFIES the RISK associated with investing in just one or a few companies.

With investing directly in the share market, a spread across at least 8-12 companies would generally be recommended to assist with some risk reduction.

Persons wanting to access the whole market (being all companies listed on the ASX or the majority thereof) can do so by Managed Investments or Exchange Traded Funds (ETF’s) run by professional Fund Managers.

This spread achieves greater diversity across companies and industries, which assists with the management of the specific risk of investing in just one or two companies.  However, you would still be exposed to the volatility of the share market as a whole.

An additional consideration is that one needs to include in your thinking is how the proposed investments will fit in with your TOTAL ASSET ALLOCATION including cash at bank, term deposits, investment properties and superannuation.

If you would like to learn more about Investing, please contact Plus 1 Wealth Advisors on (03) 5833 3000 or visit our website and register for our next FREE seminar in your area.