“Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing.” − Warren Buffett

If you are an advocate of the above statement, then instead of reading the rest of this article, your time may be better spent counting your millions. For us mere mortals, putting all your eggs in one basket is a big risk and in doing so would entail you then watching that basket very closely. Of course, that’s possible and maybe you like to live life on the edge. However, if you prefer to keep your blood pressure stable and sleep soundly, then diversifying your wealth and your risk is advisable.

People often ponder the question, what should I invest in?

For most high-net worth individuals, the primary goal in the creation of wealth is capital appreciation, then capital preservation and income generation. The preference on how your wealth is allocated will often be directed by your source of income.

For business owners, allocating capital back into their business will be elementary. Excess earnings can then be invested in a myriad of asset classes including property, commodities, real assets, fixed income, equities… the list goes on.

Starting with the national obsession, property: you have a choice between residential, commercial, international property and land. Property is usually the main or biggest asset for most people and usually represents at least 50 per cent of total wealth. Unlike listed securities, physical assets are less liquid and it’s not easy to invest an additional €10,000 into property.

Despite this limitation, property is viewed by most Maltese as being resilient, safe and the least volatile. Even considering secondary homes or property as a buy to let, the barriers to entry are significantly high, as banks will require at least a 25 per cent contribution before entertaining such a home loan. Furthermore, given the rapid and sustained rise in national property prices, the prospect of normalisation in prices and transaction levels stabilising will only increase, especially as inflationary pressures bite.

Portfolio risk is reduced as the investments can be diversified across a range of bonds and equity instruments

Less mainstream passion investments such as classic cars, luxury watches, rare whiskeys and coloured diamonds, require similar large financial outlays and can be difficult to value and trade.

So what are the alternatives?

Whether you are saving for life’s milestones such as marriage or retirement, to give your children a head-start in life, or simply to create a legacy, actively investing in professionally managed funds could be one of the wisest decisions to make. Investing in funds is very accessible, as you can start with as a little as €50 per month. Portfolio risk is reduced as the investments can be diversified across a range of bonds and equity instruments.

Funds also offer flexibility as you have the ability to increase, decrease or suspend your monthly contributions as your priorities necessitate.

Another attraction of saving monthly is cost averaging, as you buy units in funds at different prices, thus averaging the cost and reducing the risk of purchasing at peak prices which could be a possibility with a single large lump sum investment.

For those that like to follow the markets and make their own decisions, you can build your own personal portfolio, selecting from a range of local and international funds. If you are unsure where to invest, you can leave the decision to the experts and buy into ready-made managed funds, with the help of the bank adviser who will ascertain your investment goals and attitude to risk. On the topic of risk, one should always bear in mind, the price of units can rise and fall, so always invest for the long term.

So in conclusion, the most pragmatic and sensible approach is to diversify your wealth for a brighter future. Invest in a mix of assets and have a strategy focused on saving for the long term. Given the option to ‘get rich fast or die trying’, or get rich slow and relax trying, the latter sounds more appealing.

Dipak Chouhan is the head of business development, retail banking at Bank of Valletta.

The information provided in this article is based on the personal opinion of the author and is being provided solely for information purposes. This information should not be construed as investment advice, advice concerning investment products or decisions, tax or legal advice.