Note the following content is intended to be educational but it does contain promotional material for Kaldi.

Let's talk about diversification. In financial terms, it means the same as it does in any other aspect of life: having more than one option for something. Instead of relying on a single type of investment, you spread your money across different options. The end goal is to reduce the risks of investing by having your fingers in more than one pot, so to speak.  

That’s not a given, of course. But there are many potential positives to diversifying your investments. And with that in mind, we’ve got the lowdown on all things investment diversification. So read on and find out about where you might want to put your money.  

Why bother with diversification?

Okay, so first thing's first: why consider diversification as an investment strategy. Let's us break that down into a few simple points:

• It helps manage risk: If you invest everything in one place and it goes south, you could lose out. But if you spread it out, you're less likely to lose everything at once.

• It could boost your returns: Different investments perform differently at various times. By having a mix, you might catch the winners while offsetting the not-so-great performers.

• It helps you sleep at night: A diversified portfolio can help you stay calm when the markets get a bit choppy, and things go somewhat volatile.  

If you’re new to investing, the idea of having more than one investment can seem quite complicated. But actually, diversification can really simplify things for you and provide a safer way invest your money without feeling overwhelmed or like you’re taking on loads of risk.

But don't I need more money to invest in different areas?

Not at all. You can start diversifying your investments with even small amounts of money. This means that even if you only invest a little, your money is spread across many different investments.

As you save more, and if you decide to add to your investments over time, your diversification naturally increases. The important thing is to start. Even small, regular investments can grow into a well-diversified portfolio over time.

Diversification for different types of investors

Depending on your financial hopes and dreams and how you feel about risk, your diversification risk might look a bit different. That’s fine, as there’s no one way to invest. Here are some investment types you may wish to consider depending on how much risk you’d like – or be willing – to take on.  

Investing for the cautious-minded

So, just how cautious are you when it comes to investing? And don’t worry; it’s not a trick question. Some people like to play it super safe, others enjoying living life on the edge, and then there are those who sit somewhere in-between. The good news is that there’s an investing option for everyone, regardless of your level of risk-taking.  

For example, if you’re more risk averse, you might decide to invest in things like bonds and cash equivalents, with just a sprinkle of stocks thrown in for good measure.  

Erm, bonds and cash investments?

Bonds are like IOUs from companies or even governments. When you buy one, you're lending them money, which they promise to repay with interest over a specified period. Cash investments include things like money market funds. They're generally lower risk but offer smaller returns.

You like your investing somewhere in the middle between low risk and a bit of excitement

If you’re slightly more open to risk, a mix of stocks and bonds might be a good move. For example, you might decide to invest half in stocks and the other half in bonds. Or you could go 60/40 depending on how adventurous you’re feeling.  

And how do stocks work?

Stocks represent ownership in a company. When you buy a stock, you own a tiny piece of that business. If the company does well, your stock value might go up. Some stocks also pay dividends. For example, if you bought a little share in Apple many moons ago, you’d likely have a decent chunk of change thanks to its journey to becoming one of the biggest companies ever.  

Of course, not everyone can invest in the next Apple. There's risk at play—companies can struggle or even go bust, potentially losing you money. That's why diversification is so important.

For the bold investor

If you’re more willing to take on a bit more risk with your money and hedge your bets on an investment that is anything but a given, you might crank up how you invest. In that case, you could go heavier on stocks while keeping some bonds just as a back up. Say, 80/20 skewing in favour of stocks.  

I’m a “I want money, and I want it now” investor

Should you be after regular income from your investment, you might opt for something that pays dividends or interest regularly. For example, some stocks pay quarterly dividends, giving you a slice of the company's profits more frequently.  

Or you could consider bonds, which typically pay interest at set intervals. Just remember, even these "steady" options can have their ups and downs, so it's wise to diversify across different income-generating investments. Plus, you’re unlikely to see high returns if you’re looking for short-term gains.  

One way to see more immediate returns might include investing in a mix of dividend-paying stocks and bonds. This way, you're not relying on just one source of income. You could also look into funds that focus on income generation, often called Equity Income Funds - these are ready-made baskets of income-producing investments like a buy-to-let property.  

It is, of course, important to mention that much of what you do from investing comes down to risk and the time invested. The good news is that Kaldi lets you know if the time horizon of the fund you choose reflects the timeline of your saving’s goals.  

For example, if you wanted to save up for a new car and gave yourself a year to do it. Kaldi will let you know if your investment choice is in line with that timeframe or if it needs tweaking slightly.  

How to diversify with Kaldi

Investing can seem like a big, scary thing, but it doesn't need to be. At Kaldi, we make investing easier with our Stocks and Shares ISA, where you can invest in low-cost index funds or money markets- depending on your savings goal timeline. These funds are already diversified, spreading your money across many different companies, governments and money markets. Just remember that tax treatment depends on personal circumstances and is subject to change in the future.

You can start with a small amount and build your investments over time through various methods:

Cashback rewards: Earn an average of 2.8% cashback from over 170 top UK retailers. This ‘money back’ can be automatically invested, helping you diversify with no extra effort.

Round-ups: We'll round up your everyday purchases and invest the spare change, gradually building your diversified portfolio.

Regular contributions: Set up automatic monthly investments to steadily grow your diversified fund.

Budgeting tools: Use our 'savings goal calculator' and other features to plan monthly savings targets and boost your investments.

Our easy-to-use app lets you track your investments and learn more about finance, reducing anxiety around investing. With Kaldi, diversifying your investments can be as simple as shopping at your favourite stores or grabbing your daily coffee.

Remember that diversification is about spreading your risk. By investing through Kaldi, you're already getting a mix of different companies and government bonds. As you save and invest more over time—whether through cashback, round-ups, or regular contributions—you're continually adding to your diversified portfolio.

Keep an eye on your investments in the app, and don't be afraid to adjust your strategy as you learn more. Kaldi is here to help you build a diversified investment portfolio, little by little, as part of your everyday life.

Wrapping it up

Diversification is a central part of smart investing for many. By spreading your money across different types of investments, you can potentially reduce risk and improve your long-term returns. Just remember that while diversification is important, it's just one piece of the puzzle. Always think about your personal financial situation and goals when making investment decisions. If you're not sure, it's a good idea to get financial advice.  

It's important to remember that while Kaldi provides tools to help you invest and diversify, we don't offer personal financial advice. The value of your investments can go up or down, and you may get back less than you put in. If you're unsure about investing or your personal financial situation, it's best to seek advice from a qualified financial advisor.