Chinese New Year lessons: portfolio diversification

Posted on: 24th January 2020 in Finance

Happy New Year from everyone at Holborn! (No, this blog hasn’t been posted 24 days late). As we settle into 2020, China and a whole host of other countries are poised to welcome in the Chinese New Year on January 25th. Whether you welcomed in the new year on January 1st or 25th, we could all learn something from the celebrations to improve our wealth in 2020. First, let’s take a quick detour and look at the history of Chinese New Year.  

Chinese New Year – a brief history

There are 12 signs to the Chinese zodiac, all represented by different animals. The story goes that the Jade Emperor wanted to select 12 animals to be his guards. The earlier each one reached the Emperor, the better they would rank. A race ensued, with the Rat winning – all thanks to some smart thinking. Each year that passes is represented by a different animal. This year marks the Year of the Rat. If you were born in the Year of the Rat, you’re in pretty good company. Shakespeare, Mozart, and legendary F1 driver Ayrton Senna are some of the names born in the Year of the Rat. Want to know which animal you are? Check out our graphic below to find out.   Chinese Zodiac  

Personal wealth

The Chinese New Year is a time for people to wish for good health, happiness, and prosperity for the upcoming year. There is usually a strong emphasis on wealth, with gifts of money traditionally given in red envelopes. In fact, many of their proverbs revolve around wealth. One Chinese proverb, in particular, translates to ‘water enters a pigs basket.’ No doubt you’re wondering what a pig and a basket have to do with wealth and prosperity. You might also be questioning how this relates to your personal finances, and why the title of this blog is about portfolio diversification. Let me explain.  

Proverbs 101

First of all, let’s get a better understanding of the proverb itself. A pig basket, like any other basket, has lots of holes. When it’s thrown into the water, water can enter it from all directions. In Chinese culture, water symbolises money. What the proverb means is, you will have money coming in from different directions or enterprises. So, how does this relate to you?   Traditional Chinese New Years greeting

Portfolio diversification explained

Boosting your personal finances means having money coming in from different directions. This is usually achieved by looking at alternative investment options to add to your portfolio – or portfolio diversification. Portfolio diversification is a strategy which aims to maximise your returns by spreading investments across different areas. This strategy can also help to minimise losses that can occur. Think about it like not putting all your eggs in one basket. It’s generally thought that the less connected your investments are, the better. Bonds and equity are a good example. Bonds tend to move in the opposite direction to equity. This means if one starts to perform poorly, the other will perform well. This technique isn’t guaranteed to protect against loss. However, most professionals agree that the best way to reach long-term financial goals with minimal risk is to diversify your portfolio of investments.  

Next steps

You don’t need to be an avid investor to reap the benefits of portfolio diversification. Hedging your bets and spreading your investments can have benefits, regardless of the current size of your portfolio. When it comes to your personal finances, portfolio diversification is a great strategy to increase your overall financial health. Choosing the right investment options is essential to building a well-structured, profitable portfolio. Speaking with an independent financial advisor can take the headache out of financial planning. To find out how we can help you to achieve your financial goals in 2020, contact us using the form below.   For all of those celebrating the start of the new year on January 25th, 新年快樂 – Happy New Year.