Investors have been urged to diversify their portfolios beyond equities by embracing alternative investment vehicles to reduce risks, preserve wealth and enhance long-term returns.

The Managing Director of Globalview Capital Ltd, Aruna Kebira, gave the advice on Thursday in Lagos.

Mr Kebira, who is an economist, said diversification remained one of the most effective strategies for managing investment risks, describing it as a hedge against excessive exposure to a single asset class or market segment.

He advised investors to adopt a broader investment approach by combining equities with mutual funds, exchange-traded funds (ETFs), bonds, treasury bills, real estate and other suitable financial instruments.

According to him, diversified portfolios enable investors to spread risks across different asset classes and benefit from varying market conditions.

He explained that diversified investment products provide exposure to multiple assets, thereby reducing the impact of downturns in any single market.

“Equities have seasons. There are periods when the stock market performs strongly and periods when it experiences declines.

“Investors who concentrate all their funds in stocks expose themselves to unnecessary risks. If the capital market is declining, investments in the money market or fixed-income securities can help support the portfolio.

“When equities begin to recover, gains from stocks can strengthen overall returns. This strategy ensures that investments are not moving in the same direction at the same time,” he said.

Mr Kebira said many investors remained heavily tilted towards equities because of their familiarity with the prospects of capital appreciation and dividend income.

He, however, noted that such preference often limits investors’ ability to take advantage of opportunities available in mutual funds, ETFs, bonds, treasury bills, real estate and other asset classes.

The economist said that while equities could generate substantial returns, they were also vulnerable to market cycles and volatility.

“When you invest through mutual funds, your money is not invested only in stocks. Fund managers allocate funds across different assets, including bonds, treasury bills and money market instruments.

“This helps investors maintain stability in their portfolios even when the stock market is under pressure,” he said.

Mr Kebira attributed the low adoption of collective investment schemes to limited understanding of how mutual funds and ETFs operate.

According to him, many investors are more familiar with buying individual company shares than investing in professionally managed funds.

“Many investors understand dividends and capital appreciation from stocks, but they do not fully understand concepts such as distributions and net asset values, which are common in mutual funds.

“As a result, they prefer to buy individual stocks rather than invest in a basket of assets managed by professionals,” he said.

He reiterated that investors who diversify their portfolios are better positioned to achieve long-term financial goals while minimising the effects of market volatility.

(NAN)