Sample Essay

In the previous paper, investment diversification was suggested according to the overall performance of sectors, however, this time it will slightly vary where the overall structure is based on key variables such as risks, returns and cost to investments. Previously, out of $5,000,000 of the total investments: 13 percent was allocated to UK dividend stocks comprising of three sectors technology, Health and industrial, 10 percent was given to real state, 55 percent to Exchange Trade Funds (ETFs) in which 20 percent investment was made in iShares MSCI Pacific, 25 percent to BLDRS Developed markets 100 and 10 percent to REIT Index, next 12 percent of the total investment was allocated to Foreign Exchange Trading and the last 10 percent to Gold and Mining,

When one diversifies the investments, there are several factors that affect this diversification in terms of risks, returns and the cost of investments in the long run. Risks are primarily of two types: Market Risk and Unique Risk. One can never avoid market risk or the systematic risk due to its inevitable effect over the entire economy and on all businesses. Market risks include macroeconomic factors and cannot be minimized through diversification, whereas unique risks are company specific risks which can be diversified and reduced significantly (Brealy, Myers, Marcus. N.d: 283). In the previous portfolio all investments were subject to unique risks thus diversifying them to reduce the effect of overall risk factors on the investment.

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