What is a diversified portfolio?

A diversified portfolio is a strategy for managing financial risk. Diversification involves spreading your investments across different sectors, assets and regions. This approach helps reduce the impact of one poorly performing investment. When one part of your portfolio suffers, others can help balance the loss.

The idea is simple: don't put all your eggs in one basket.

Why is diversification important for investors?

Diversification is important for investors because it reduces the risk of significant losses. By spreading your investments, you can better navigate market ups and downs. This strategy is critical if you're heavily invested in a specific industry or company.

For example, if a large part of your wealth is tied to one sector or company, relying only on these investments can be risky. Diversification helps balance that risk by spreading it across different assets.

Key benefits of diversification:

Additional advantages to diversification:

• Investing in liquid assets, such as stocks or bonds, lets you access funds quickly for major expenses like buying a house.

• Investing in assets that can serve as loan collateral, such as real estate, offers a financing option.

Types of Diversification:

• Asset Class Diversification: Spreading investments across equities, bonds, real estate, cash, or commodities. Each asset class responds differently to economic cycles, interest rates, and inflation.

• Geographical Diversification: Investing in different countries or regions to avoid concentrated geopolitical risks. For instance, an event impacting the Asian economy might not affect European or U.S. markets in the same way.

• Sector Diversification: Within a portfolio of stocks, investing in a variety of sectors (e.g., technology, healthcare, industrials) can help mitigate risks specific to any one industry.

Is the 60/40 portfolio still relevant for the modern investor?

The 60/40 portfolio, traditionally composed of 60% stocks and 40% bonds, has long been the go-to strategy for balancing risk and reward. But is it still relevant for the modern investor?

In today's complex financial landscape, the answer is both yes and no. On one hand, the 60/40 mix offers a time-tested way to achieve moderate growth while managing risk. However, given low bond yields, rising inflation, and the increasing role of alternative investments, many investors are questioning whether this classic allocation can keep pace with their long-term goals.

Modern investors now have access to a broader range of asset classes. These include private equity, private credit, and real estate. These options allow for better diversification. Moreover, AI-driven investment strategies and more intelligent risk management tools are changing how portfolios are constructed. This opens up opportunities for more dynamic allocations that respond to market conditions in real-time.

While the 60/40 portfolio isn't obsolete, it may need to evolve. Incorporating new asset classes, leveraging technology, and personalizing strategies based on individual risk tolerance and financial goals could offer a more tailored and resilient approach in today's market.

How to Build a Diversified Portfolio with Arta

You can build a diversified portfolio by investing in assets and sectors with low or negative correlations. This means that if one dips, another may rise, helping to reduce the risk associated with a concentrated portfolio.

Arta provides accredited investors in Singapore with access to a wide range of investment products, enabling you to build a well-balanced portfolio tailored to your financial goals. With offerings that span private and public investments, Arta ensures you have the necessary tools to diversify effectively.

There’s no one-size-fits-all approach to diversification. Your ideal portfolio allocation depends on several factors, including your financial objectives, risk tolerance, and investment horizon. A common strategy is to diversify across different asset classes, such as stocks, bonds, or treasuries, and alternative investments like real estate, private credit, or private equity.

The proportion of each asset class in your portfolio will depend on your individual circumstances and goals. Still, a general rule of thumb is to have a higher allocation in stocks when you have a longer investment timeline and a higher risk tolerance and then a higher portion in bonds when you have a shorter timeline and a lower risk tolerance.

The ultimate goal of diversification is to ensure that your investments are spread across different assets and sectors, so you're not overly reliant on any one area.

How to diversify with public markets

With Arta’s core public market portfolios, investors are diversified right from the start. These portfolios offer comprehensive exposure across equities and fixed income, with equities diversified by sector and sub-segment, covering developed and emerging markets. The fixed income portion provides global exposure across investment-grade, high-yield, and treasury bonds. For those seeking customized regional exposure, Arta allows clients to tilt their portfolios towards specific regions like the U.S. or APAC, all while maintaining robust diversification.

Beyond the core strategies, Arta’s satellite strategies let investors diversify further by adding sector or thematic exposure. For example, a potential strategy might be one that enables investors to capitalize on AI growth without concentrating risk in just one or two stocks. Arta also offers quant strategies, which aim to diversify within the S&P 500 while avoiding overexposure to specific stocks, and other types of strategies, such as those that aim to reduce volatility during market shifts. Additionally, structured products can enhance risk-adjusted returns through strategies that return your initial investment at maturity or generate income that is tied to the performance of underlying assets.

How to diversify with Treasury Securities

U.S. Treasuries are considered among the safest investment options, as the U.S. government fully backs them. Including Treasury securities in your portfolio can provide a stabilizing effect, especially if you have a stock-heavy allocation.

How to Diversify with Private Investments

Private investments, also known as alternatives or “alts,” are financial assets outside traditional public market options like stocks, bonds, or cash. These investments offer different return, risk, and liquidity profiles than traditional assets and play a vital role in a comprehensive investment strategy.

Historically, private investments have been the domain of the ultra-wealthy, as they often come with high minimum investment requirements. Examples of private investments include real estate, private equity, private credit, and venture capital.

Arta provides access to private investment opportunities that were previously out of reach for most investors. By building direct relationships with fund managers and aggregating smaller investments, Arta makes it possible for its members to explore these new investment options.

How to diversify with private equity

Private equity offers accredited investors the chance to invest in private companies with significant growth potential. This asset class involves direct investments in firms that are not yet listed on public exchanges.

Investing in private companies before they go public can capture early-stage growth and the potential for substantial long-term returns. These investments are often made in businesses that are scaling up or undergoing major transformations, with the hope that successful transitions will lead to higher valuations over time.

Private equity investments are managed by seasoned fund managers with deep expertise in the sectors they focus on. Arta collaborates with some of the top global private equity managers, including those with a strong track record of delivering exceptional historical returns.

Adding private equity to your portfolio can help you target significant long-term gains. It offers exposure to fast-growing sectors and higher return potential compared to traditional public market investments.

How to diversify with Private Credit

Private credit involves lending to businesses that need capital but may not qualify for traditional bank loans. It offers an attractive alternative to public debt and provides higher potential yields.

Private credit typically offers much higher interest rates compared to publicly traded bonds or fixed-income investments. This is because private credit carries higher risks, which accredited investors can manage within a diversified portfolio.

Private credit includes senior loans, mezzanine financing, and direct lending to businesses. These loans are tailored to the borrower’s needs, creating customized opportunities for yield-focused investors.

You can use private credit to potentially generate consistent income and increase yield within your portfolio. Since private credit usually has a low correlation with equity markets, it can help offset stock market volatility and provide a predictable return stream.

How to diversify with Venture Capital

Venture capital (VC) allows accredited investors to invest in early-stage startups with high growth potential. This is especially true in technology, healthcare, and other innovative industries.

VC funds focus on startups that are poised to disrupt their industries. By investing early, you can capitalize on rapid growth and potentially earn significant returns as these companies scale.

Arta partners with a selection of global VC fund managers who specialize in identifying and investing in groundbreaking companies. For accredited investors in Singapore, this offers access to exciting growth opportunities before they become mainstream.

Venture capital helps diversify your portfolio by adding exposure to innovation and disruptive technologies. While these investments carry higher risk, they also offer the potential for significant returns, making them a compelling option to consider for growth-focused investors.

How to Diversify with Private Real Estate

Private real estate allows you to invest in residential, commercial, or industrial properties that aren't available on public exchanges. Real estate has the potential to offer both income and capital appreciation. It behaves differently from equities and bonds, providing excellent diversification benefits.

Private real estate investments may include those that generate rental income, which adds a steady cash flow to your portfolio. This can be especially valuable during periods of market uncertainty, as income-focused assets offer stability.

In addition to rental income, private real estate can appreciate significantly over the long term. Arta partners with a selection of top global real estate fund managers to target high-quality properties in prime locations, boosting both income and growth potential.

Adding private real estate diversifies your portfolio by exposing you to a different economic cycle than equities or bonds. Real estate provides stability through rental income and the potential for capital appreciation, making it a strong choice for balanced growth and income.

What are the benefits of building a diversified portfolio with Arta?

At Arta, we believe diversification is vital to financial success. It helps buffer against market volatility and opens the door to higher potential returns. However, building a well-diversified portfolio takes time, knowledge, and access to a wide range of investment options, especially in alternative markets.

That’s where we come in. We don't just promote diversification; we make it accessible.

With Arta, you can invest with ease, using strategies similar to those employed by the ultra-wealthy. Simply open your Arta app and explore all the ways we can help you diversify your portfolio.

How to get started with Arta?

Ready to diversify your portfolio? Getting started with Arta is simple and flexible. You can choose the path that best fits your needs.

Create a free membership to access our digital platform and explore our exclusive products and services. This self-guided option lets you browse at your own pace and see how we can help you reach your financial goals.

Our Member Success team is here to help if you prefer a more personal approach. Schedule a one-on-one consultation to discuss your financial needs and learn how Arta’s tailored solutions can work for you.