Diversifying your portfolio is important to manage your risk. What does diversification mean? It means spreading your risk between investments with different characteristics, so that if one investment, or group of investments doesn’t perform well it doesn’t do too much damage to the overall performance of your portfolio.
For example, it is unwise for your portfolio to be invested in only one or two companies: should one of those companies fail, you could lose a very large part of your available capital, which it would be hard to recover from.
Types of Diversification
There are various ways you can diversify your portfolio. Most obviously by investing in several companies. Another consideration, however, is geographical diversification, i.e. not having all your investments linked to the economic performance of one country or region. A common failing of investors is “home country bias”, i.e. focusing your investments on companies operating in the country you live in or are most familiar with. Should that country underperform economically (or if shares in that country’s markets appear overpriced), that will damage your returns, so it makes sense to include investments that are exposed to a variety of regions in your portfolio (biasing towards those that appear to offer the best prospective returns).
What about a lower rate of Stamp Duty that was also payable on CFDs (eg 0.25%) Levelling the playing field between CFD trading and share trading.
Looks like the OTS would like a meeting to discuss, so we might mention that then. Although clearly it would be preferable to remove stamp duty on all transactions to “equalise” matters.
Roger Lawson
Also ISAs and pensions are advertised as being tax-free, so it’s anomalous that stamp duty is still levied on them.