Beyond Diversification

THE MISSING PIECE

All investors understand the principle of diversification: spread your capital across asset classes, industries, and geographies to increase your exposure and reduce the risk of significant losses during market downturns. It’s one of the cornerstones of a sound investment strategy. So, why do we do it? Why not take on as much risk as possible to chase the biggest returns? Well, with the potential for great rewards comes the risk of great losses. Diversification exists to keep us safe and protect our money when the markets turn.

If diversification is such a key part of financial planning and risk management, then surely, we must aim for complete diversification across our portfolio - right? Focusing on where your money is invested is a good start, but what about where it comes from and where it goes? To focus so much on financial risks while ignoring personal risks is a grave mistake. What if you’re no longer earning and forced to withdraw large chunks of your funds just to cover day-to-day costs? What if this coincides with a market lull?

How do we protect ourselves and our finances once we are confident in the security of our investments? Complete diversification means safeguarding the one thing your investments truly rely on: you.

THE BLIND SPOT

You are the most important piece of your portfolio -
how does that sit with you?

You may spend time reviewing performance charts, rebalancing your portfolio, or debating whether to increase or decrease your exposure to equities. But, every contribution, every long-term decision, every bit of confidence you have in your plan depends on one thing – your ability to keep earning. You are the source of the funds that keep the wheels of your plan in motion, the engine that keeps things moving.

So, what happens when you can’t work any longer? When your income stops? When your health takes an unexpected turn? For most, this is when the plan starts to unravel: the contributions stop, the retirement date pushes back, expenditure rises, and reserves are rapidly emptied. As if overnight, a plan that took years to build falls apart. The reason? Not the investments, but the person behind them. Every portfolio is only as strong as its weakest link, whatever that may be.

THE SOLUTION

The principle of diversification and risk management also applies to you and your income. You manage risk across investment markets, now it’s time to manage volatility in life – the risk that illness could impact your income, savings, and investments.

Enter, Protection. Protection isn’t a contradiction to investing. It helps to cover your income, and cash flow needs when your health declines, acting as a tool to help safeguard what you’ve built when you are most financially vulnerable. At its core, it’s a financial instrument designed to manage risk and ensure continuity. It’s not an unnecessary cost or baggage; it’s a contingency.

It’s not about fear; it’s about maintaining control.

THE INTEGRATION

Diversification and Protection both exist to help safeguard and preserve your plan against adversity. Diversification helps to protect you from market volatility; protection helps to safeguard you from life’s volatility. They are complementary strategies - like a shield and armour: one can exist without the other, but you’ll be much safer with both.

Income Protection can help keep your cash flow healthy if you can’t work for an extended period due to accident or illness, allowing you to continue contributing to your investments – or at least stop the need to draw from them. Critical Illness cover provides a much-needed cash injection if you fall ill suddenly, so you can pay off any large debts or take the time to recover fully without selling your investments at the wrong time. Life cover helps to protect your legacy goals, providing for your family, gifting to future generations, or covering inheritance tax liabilities.

Protection isn’t an interference in your plan; it’s a balancing tool. Premiums should be built into your monthly cash flow with as much credence as investment contributions. It isn’t simply an add-on; it’s the safety net beneath everything you’ve built. Investments thrive when life stays uninterrupted - protection makes that possible.

THE BENEFITS

Protection isn’t just a safety net; it’s a strategic enhancement for your financial plan. It helps to keep your cash flow steady when life interrupts. It keeps your family financially secure when you can’t. It helps prevent the need to sell assets at the wrong time, protecting the prospect of long-term growth (never guaranteed) and compounding returns.

When life throws a challenge your way, the right protection solution can give you choice and control. A critical illness or an accident doesn’t have to derail your plans; protection can give you the freedom to recover fully whilst maintaining your lifestyle and keeping your investments working for you. Life cover can help protect the legacy you’ve spent your whole life building.

True financial resilience isn’t measured by the size of performance of your portfolio; it’s measured by your ability to sustain it. Diversification spread risks across markets, and protection spreads risk across life. Together, they form a complete strategy which helps to safeguard not only your investments, but the very person who enables them, you.

After all, the strongest portfolios aren’t the ones that survive the markets alone, they’re the ones that survive you.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.