The Golden Rule of Investing: How I Use Diversification to Protect and Grow My Wealth
As someone who has built a career in corporate governance and operations, I’ve come to appreciate one timeless truth: “Don’t put all your eggs in one basket.” In investing, this is more than just a saying—it’s the foundation of building real, lasting wealth. This strategy is called diversification, and it’s what sets disciplined investors apart from gamblers. It’s not merely about owning many investments, but about holding different kinds of assets that react differently to the market and economy.
For me, a well-diversified portfolio acts like a shield. It reduces the impact of market shocks, while still giving my money room to grow. Let me walk you through why this matters, the key building blocks you can use right here in Kenya, and exactly how I go about creating my own diversified investment plan.
Why I Diversify: Managing Risk and Correlation
The goal of diversification isn’t to wipe out risk—it’s to manage it wisely. By combining different types of investments, I make sure that if one area struggles, others can help balance things out. This leads to steadier returns over time, which is critical for building wealth.
Table 1: Key Diversification Terms I Use
| Term | What It Means | Why It Matters to Me |
|---|---|---|
| Asset Class | Groups of investments with similar traits, like stocks (equities), bonds (fixed income), or property (real estate). | True diversification means spreading money across different asset classes, not just buying many stocks. |
| Diversification | Putting money into a variety of assets to reduce overall risk. | This is my first line of defense against unpredictable markets. |
| Correlation | How two assets move relative to each other. Low or negative correlation means they don’t move together. | By mixing assets that aren’t closely linked, I smooth out returns. For example, stocks and government bonds often behave differently. |
| Risk Profile | My comfort level and ability to handle investment ups and downs. | My risk profile decides how aggressively or conservatively I build my portfolio. |
The Building Blocks: How I Diversify as a Kenyan Investor
When I build my portfolio, I look at several key asset classes available here in Kenya. The right mix depends on factors like my age, what I’m investing for, and how well I sleep at night during market swings. Here’s a look at three sample portfolios I often use as reference points for different types of investors.
Table 2: Sample Diversified Portfolios I Consider
| Asset Class | Conservative (Low Risk) | Moderate (Balanced) | Aggressive (High Growth) |
|---|---|---|---|
| Cash / Money Market Funds (MMF) | 20% | 10% | 5% |
| Government Bonds & Bills | 40% | 30% | 15% |
| SACCO Deposits & Shares | 25% | 25% | 20% |
| Kenyan Stocks (Equities) / Unit Trusts | 10% | 25% | 45% |
| Real Estate / REITs / Alternatives | 5% | 10% | 15% |
| Total | 100% | 100% | 100% |
Notice how as the portfolio shifts from conservative to aggressive, more money is allocated to stocks and real estate. This is how I balance risk with potential return based on my goals.
How I Build My Diversified Portfolio: 5 Practical Steps
Diversifying doesn’t have to be complicated. I started small and adjusted over time. Here’s my straightforward process.
Table 3: My 5-Step Plan for Diversification
| Step | What I Do | Why It Works |
|---|---|---|
| 1. Define My Goals & Risk Tolerance | I clarify what I’m investing for—like a home in 5 years or retirement in 30—and how I feel about seeing my investment values fluctuate. | This shapes whether I build a conservative, moderate, or aggressive portfolio. |
| 2. Build My Safety Net | I keep 3-6 months of expenses in a Money Market Fund so I never have to panic sell long-term investments in an emergency. | This gives me peace of mind and stability. |
| 3. Invest in Core Stable Assets | I allocate to government bonds and SACCOs for predictable income and steady growth. | This forms the reliable backbone of my investments. |
| 4. Add My Growth Layer | Once my foundation is strong, I start adding stocks through Equity Unit Trusts or directly on the NSE. | This is where most of my long-term growth will come from. |
| 5. Review & Rebalance Annually | Every year, I check my portfolio. If stocks have grown too large, I trim and reinvest in bonds or MMFs to maintain my target allocation. | This keeps my portfolio aligned and forces me to buy low and sell high. |
Diversification is my favourite tool for managing the unknowns of investing. By spreading my money across various assets, I’m not just hoping for growth—I’m actively protecting my future and building wealth in a thoughtful, disciplined way.