Preserving, growing and passing on wealth: the key role of diversification

Not all assets react in the same way to economic, financial or geopolitical events. Some sectors may be negatively affected while others benefit from the same context. Some regions go through periods of growth while others experience a slowdown.

From this perspective, diversification seeks to avoid wealth being too heavily dependent on a single market, sector or limited number of investments. By combining several potential sources of return, it can help reduce the impact of adverse events, limit concentration risks and better manage portfolio fluctuations. It therefore contributes to building a more diversified wealth strategy over the long term.

For many years, diversification was mainly built around an allocation between equities and bonds. While this combination remains a fundamental element of many allocations, today’s financial environment calls for a broader approach.

The relationships between different asset classes have changed, as have the investment opportunities available to investors. Modern diversification now means combining different asset classes, several investment horizons and different levels of risk in order to build a more balanced portfolio.

This reflection may lead to the measured and coherent integration of approaches that complement traditional investments.

Certain investment approaches may complement traditional investments and provide exposure to different sources of risk and return.

These values may also help build wealth that is more diversified and potentially reducing the impact of certain market developments.

Structured products, for example, are investments built from financial assets such as equities, indices or interest rates. They allow to implement strategies adapted to different market environments, with risk and return levels defined in advance. Used selectively within a portfolio, they can complement traditional investments and help better balance risk and performance potential. As with any investment, they involve costs and risks and may not be suitable for all investors.

In recent years, private markets have gradually found their place in some wealth strategies. They allow investors to invest in companies or assets that are not listed on a stock exchange, thereby providing access to segments of the economy that may be less exposed to daily fluctuations in financial markets.

These investments are generally designed for a longer time horizon. They are also less easy to sell quickly, which means they need to be integrated cautiously into the overall allocation. When used appropriately, however, they can provide an additional source of diversification and exposure to segments of the economy that are not listed on public markets.

As with any investment, they involve costs and risks and may not be suitable for all investors.

Effective diversification is not limited to spreading investments across several vehicles. It aims to build a coherent whole, tailored to each investor’s life goals, investment horizon and risk profile. To achieve this, it is often useful to combine several asset classes, investment approaches and investment horizons in order to better balance sources of risk and performance.

The ambition is to build a diversified portfolio that seeks to maintain a balance between stability, growth potential and adaptability across market cycles.