Diversification can reduce risk, but sometimes it’s not as easy to achieve as it sounds.

Building a diversified portfolio by buying individual shares usually means you need to have enough money to spread your investment across a number of different shares. Smartshares allow you to spread your risk across a broad portfolio with as little as NZ$1,500.

Diversifying your portfolio by buying individual shares also means you need to know enough about each company to feel comfortable buying into it. Not many people new to the market have this level of specialist knowledge. You could spend time researching the market to build a diversified portfolio. Many people simply don’t have the time to do that either.

Smartshares can reduce risk compared to investments in individual shares because there is less chance that all the companies in a Smartshares index will perform poorly at the same time. The losses from companies performing badly are usually balanced by those performing well.