Whether you trade stocks, Forex or options an important part of reducing risk is diversification in investing. Putting all your money on one horse is high risk and is the sign of a gambler, not an investor. No technical analysis or momentum prediction is 100% foolproof and ever investor must reckon with periodic drawdowns.
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Diversification in Investing - 3 factors to consider.
It helps to break the topic up into different questions that you consider separately before bringing them together for the final investment decision.
Every investment vehicle or strategy has a distinct risk profile, and you need to be aware of this. Similarly, each approach has a potential reward profile. In most circumstances the reward is directly proportional to the risk. This means that the more profit you hope to make, the more risk you must be willing to handle. A good investor tries to balance this out.
For example, trading ETFs is low risk, but the return on investment (ROI) is barely higher than the inflation rate. Trading DITM (Deep-in-the-Money) options can increase the reward without increasing the risk. Buy-and-hold stock trading (for a stock with good fundamentals) can be profitable, especially if you reinvest dividends. Selling covered calls on your stock portfolio can increase your ROI without increasing risk. Buying calls options is highly risky unless you are an accomplished swing trader, but the rewards are amazing. Selling option spreads is slightly less profitable in the long run, but the risk profile is even lower than buy-and-hold strategies.
Exposure diversification
The market has different sectors and each sector has different cyclical growth or retreat patterns. Your investment plan should include stocks or options from each sector. As money flows from one sector to another, you can track this and plan your investments accordingly. You should never have more than 2-3% of your portfolio committed to a particular stock and never have more than 20% designated to a certain sector.
Portfolio Balancing
Every year or every quarter, you need to look at how well your portfolio is balanced. In a given time period, some sectors will grow while other remain static or shrink. This can leave your portfolio unbalanced. As a responsible investor, you need to rebalance your diversification in investing. So, perhaps you have divided your portfolio evenly between Forex, ETFs, REITs, options selling and favourite stocks to buy-and-hold. If you experience bold profits by selling options, you can take these profits and reinvest them in the other sectors so that the proportion remains the same.
The learning curve
It is easier, but riskier, to stick with one investment strategy. It is well worth it to invest educational effort into diverse strategies. This can be one of the biggest factors in reducing your risk profile. Serious investors, who have no wish to gamble, will make this investment. Diversification in investing is one the most powerful profit factors, simply because it stops you losing money.
The Council of Ministers updated the conditions for naturalisation of investors in Cyprus by exception, based on subsection (2) of section 111A of the Civil Registry Laws of 2002-2013. According to the verdict laid out on March 19, 2014, a non-Cypriot citizen may apply for the attainment of Cypriot citizenship, if he or she has purchased state bonds, invested in financial assets of Cypriot companies or Cypriot organisations, invested in real estate, land development and infrastructure projects, maintains deposits in Cypriot banks, has business activities in the country or suffered an impairment of deposits due to the resolution measures implemented.
Applicants interested in attaining Cypriot citizenship are required to complete the M127 form and submit certain documentation. In all cases, investors need to submit the contract of sale and a confirmation of settlement of their residence. Further documentation is also required, depending on the case.
CRITERIA AND DOCUMENTATION:
A1. Purchase of state bonds
The investor must have bought state bonds of the Republic of Cyprus of at least €5 million.
Documentation Required
Receipts from the Treasury of the Republic of Cyprus for the purchase of the state bonds.
A2. Investment in financial assets of Cypriot companies or Cypriot organisations:
The investor must have obtained financial assets of Cypriot companies or Cypriot organisations, i.e. bonds, securities, debentures registered and issued in the Republic of Cyprus of at least €5 million.
The financial assets can be obtained at issuance or by the market.
Documentation Required
a. Title/titles and other documents concerning the financial assets.
b. Copy of the bank transfer in the Cypriot commercial banking institution in the name of the company or the organisation.
A3. Investment in real estate, land development and infrastructure projects:
The investor must have pursued an investment of at least €5 million for the purchase or construction of buildings or for the construction of other land development projects, such as residential developments, commercial developments, developments in tourism or other infrastructure projects.
Documentation Required
a. Contract of sale.
b. Title Deeds/ Receipt for lodging the contract with the Lands and Survey Department.
c. Payment receipts of the agreed purchase amount.
d. Copy of the bank transfer in the Cypriot commercial banking institution in the name of the vendor or the vendor's company.
A4. Purchase or creation or participation in Cypriot businesses or companies:
The investor must have invested at least €5 million in the purchase, creation or participation in businesses or companies, based and operating in the Republic of Cyprus. Apparently, these businesses or companies should have real presence in Cyprus and employ at least five Cypriot citizens. It should be underlined that the required conversion of deposits into shares is comprised in this criterion.
Documentation Required
A5. Deposits in Cypriot Banks
The eligible investor must maintain private fixed term deposits for a three-year period in banking institutions of the Republic or deposits of privately owned companies or trusts in which the investor is the beneficiary owner of €5 at least million.
Documentation Required
A6. Combination of criteria A1-A5
An individual is eligible for the acquisition of Cypriot citizenship, if he or she has a combination of the above, i.e. investment in government bonds, investment in financial assets of Cypriot companies or organisations, investment in real estate, land development and infrastructure projects, purchase or creation or participation in Cypriot businesses or companies and deposits in Cypriot banks, to at least €5 million.
A7. Investors with impaired deposits after bank resolution
Individuals whose deposits with Laiki and Bank of Cyprus have been impaired due to the restructuring measures implemented after March 15, 2013 may apply for naturalisation. In order to be eligible, the amount of their deposit impairment should be no less than €3 million.
In the event that an investor had suffered impairment in his or her deposits below €3 million, he or she may still apply, under the condition that he or she has made an additional investment through the criteria A1-A5 (purchase of state bonds, investment in financial assets of Cypriot companies or Cypriot organisations, investment in real estate, land development or infrastructure projects, purchase or creation or participation in Cypriot businesses or companies and deposits in Cypriot banks) amounting to the balance required of the above-mentioned criteria.
Documentation Required
b. When it comes to deposits in companies in which the investor is the beneficiary owner, the certificate of registration of the company by the Registrar of Companies and/or any other relevant evidence need to be submitted.
A8. Major Collective Investments:
The Council of Ministers shall have the authority on special occasions, to reduce the criteria A1 (Purchase of state bonds), A2 (Investment in financial assets of Cypriot companies or Cypriot organisations), A3 (Investment in real estate, land development or infrastructure projects) and A4 (Purchase or creation or participation in Cypriot businesses and companies):
I. To €2 million for investors who evidently participate in a special collective investment scheme under the condition that the total value of the investment is more than €12.5 million.
The provision (I), the investment Criteria A1-A4 could be accomplished through different seller/ provider (physical or legal entity).
Terms and Conditions
Investors who satisfy the criteria for applying for naturalisation must have a clean criminal record. Residency by investment programs Moreover, their names must not be incorporated in the list of individuals whose assets are ordered to be frozen within the European Union borders.
Additionally, applicants must hold a permanent privately-owned dwelling in the country, the market value of which must be worth a minimum of €500.000 plus V.A.T. It should be clarified that family members, who apply independently as investors, are eligible to obtain a residence collectively, under the condition that the total price of the particular home-property covers the amount of € 500.000 per each applicant
The aforementioned conditions do not affect the absolute discretion of the Council of Ministers in affording a decision. In case that after an assessment, it has been revealed that a condition has been circumvented, the authorisation of Cypriot citizenship may be annulled.