If you read the articles of people who succeed in investing or listen to their experiences, you don’t see anything that says the answer is exactly right. If there are 10,000 people who have succeeded in investing, there are 10,000 ways to invest.
I think it is important for each person to have their own investment principles, and to establish and keep their own investment principles, whether real estate, stocks, or virtual assets.
(Many people will recognize and acknowledge the premise that the principle of investment is important, but it seems that there are surprisingly not many people who follow their investment principles at the time of important decision-making.)
What is the ‘Investment Diversification’
Since I am an office worker and I had to invest in an environment where I had to focus entirely on my work during the daytime on weekdays, I had to set the best investment principles I could do in my environment, and my keyword for investment principles was “distributed investment, split investment, long-term investment.”
(The short-term trading strategy of checking supply and demand every day and monitoring changes in the charts didn’t suit me.)
Investment Diversification, You have to think about what to distribute and invest. Usually, when investing in stocks, you have to distribute stocks. Or, you may have heard a lot of stories about distributing and investing in each industry sector.
However, I think we should have an eye for ‘dispersion’ in a larger framework. Using the money I have and the level of leverage I can afford, I decide how to distribute and invest the total assets I can manage.
Don’t put all your eggs in one basket
There is a saying about decentralized investment, “Don’t put all your eggs in one basket.”
This means that I need to minimize risk by constructing a portfolio of my assets. The quote comes from Harry Markowitz, the founder of portfolio theory.
Since then, “James Tobin,” a professor of economics at Yale University, has established portfolio theory and won the Nobel Prize in Economics in 1981. Asked to briefly explain portfolio theory, he said, “Eggs should not be put in one basket. Because if you drop the basket, it’s all over.”
The above graph only expresses the portfolio variance of stocks, but macroscopically, I think that not only stocks but also “all assets” should be approached and invested in the portfolio side to minimize the overall investment risk.
Variance is considered to be divided into asset type decentralization (real estate, financial assets, etc.), investment currency decentralization (dollar, euro, yuan, yen, won, etc.), analog assets (which are randomly named by the author) and digital assets (i.e., traditional finance and virtual assets), and if there are other investments (e.g., investments using art, copyrights, NFTs, etc.), such fields could also be considered as categories of decentralized investment.
Proportion of Investment
If I decide which categories to distribute and invest my total assets to be managed, I need to decide the proportion of investment (what percentage of assets I will invest) for each investment sector.
If you want to avoid relative risk and invest in stable assets, it would be right to invest more in real estate than in financial assets and in analog assets rather than volatile digital assets. On the contrary, investors with a tendency to want high returns, even if they take some risk, would prefer to invest more in financial assets than in real estate and in digital assets rather than less volatile analog assets.
In this way, it is necessary to determine the target to be invested by the person and to determine the proportion of each investment item in consideration of the person’s investment tendency. I don’t think there is a correct answer to the proportion of investment, and if the investment principle has been set after deep consideration for each individual, I think it’s okay to form and operate a portfolio according to that principle.
The reason for the decentralization of investment currency is that Koreans do not have to make investments based on the ‘won’. Taking the stock market as an example, the Korean market accounts for only around 2% of the global market.
Considering that the amount I invest in stocks is 100, I need to think deeply about whether investing all my assets in a market that is only 2% of the world’s market capitalization is the right judgment.
Rather, wouldn’t it be right to invest a larger proportion of the money in a larger market. If you invest in the U.S. market, you invest in the dollar, if you invest in the Chinese market, you can invest in the yuan, and if you invest in the European market, you can invest in the euro. Of course, it will be possible to invest in the currency itself, which earns foreign exchange gains by using the volatility of the exchange rate.
Conclusion
As such, I think it is the right attitude for a person to start investing after thinking deeply about what kind of assets I will distribute my entire assets to, which markets I will distribute stocks to, and which industries and companies I will distribute to invest in beforehand, and that is the way to minimize the risk of asset investment.
