Saving and portfolio diversification - concepts you should know

Through the following lines, we discuss two of the most important modern concepts in financial matters, namely savings and financial portfolios.

Not all things are as simple as past eras in keeping money or depositing it in a bank, or even investing it in a project. However, financial practices have become more complex than some imagine, and it has always become better in general to know everything new in modern human practices - especially financial - so that man can coexist and adapt his affairs to the modern era.

Saving is the process of saving a portion of income or revenue rather than spending it entirely. This is done with the aim of using it later to achieve future financial goals.

In other words, saving is the postponement of current consumption in favor of future consumption.  Do you find this definition a bit complicated? Fair enough.. Let's say it's all the money you can save from your money – your whole income – and don't spend it on anything you consume.

It should be known that saving is the first step towards financial stability and achieving financial goals.

There are many people who confuse the concepts of saving and investing, and the difference between saving and investing is:

• Savings: Keeping money securely, usually in a savings account or bank deposit. This may be done in a diversified manner, as it is recently called a portfolio.

• Investment: The use of funds to buy assets that you expect to generate a financial return. That is, it is money that is used to make a profit. The investment process or its return may involve something called a portfolio.

What are the most important advantages of saving?

• Financial security: Provides a financial safety net in case of emergencies, such as job loss or illness.

Achieving financial goals: Saving helps achieve financial goals, such as buying a house or car or starting a business.

• Financial stability: provides a sense of financial stability and reduces anxiety about the future.

Financial growth: Money saved can grow over time through interest or returns on investments.

What are the most important ways to save?

Although things may seem simple in this regard, it is best to know more about these methods. For example, we say that we must:

• Budgeting: It is important to determine income and expenses to know how much can be saved.

• Setting savings goals: Setting financial goals helps to focus on saving regularly.

• Prepare a savings plan: Develop a specific plan for how to save and how much to save each month.

• Savings Automation: Set up an automatic transfer from the current account to the savings account every month.

• Reduce expenses: Find ways to reduce expenses to increase the amount saved.

• Find opportunities to earn extra money: Increasing income helps to save more.

This is so that there is an essential item to save in your life. Experts advise dividing the total income of a person as follows:

1- 50% allocated to the basics of needs.

2- 30% is allocated to luxuries.

3- 20% allocated to savings.

These three divisions must be known and identified, which will certainly differ from human to human. For example, owning a car in a community is essential, as is renting a house or some services. While car expenses in another society are considered luxuries and so on.

In general, if you succeed in saving continuously for at least a year, then you should look at the ownership and diversity of the portfolio...

Financial portfolios - their definition and the importance of their diversity

A portfolio is a set of investment assets that an investor owns. These assets include stocks, bonds, real estate, commodities, cash, and more. This includes almost everything that can be invested in developmentally for money. Portfolios aim to achieve specific goals, such as growth in income or capital preservation.

Types of portfolios include the following (in general):

Growth portfolios: These portfolios focus on high-yielding assets, such as stocks.

Income portfolios: These portfolios focus on fixed-income assets, such as bonds.

Capital Preservation Portfolios: These portfolios focus on low-risk assets, such as cash and government bonds. And sometimes gold.

Portfolio diversification is a risk management strategy that involves investing money in a variety of assets. In simple terms, investment diversity is in several areas, such as those mentioned earlier. Put it more simply, it stems from the old proverb "Don't put all your eggs in one basket." This helps reduce the overall risk of a portfolio, because the depreciation of a single asset will not significantly affect the overall value of the portfolio.

Benefits of portfolio diversification

Portfolio diversification depends on the investor's goals and risk appetite. It is important to consult a qualified financial advisor before making any investment decisions. It is best to consult an expert or financial company locally, or in the same country you intend to invest in, regardless of the type of investment. We mention the most important benefits of this diversification, which are:

• Reduce risk: Portfolio diversification reduces the likelihood of losing money.

• Increase returns: Portfolio diversification can increase overall returns.

• Stability: Portfolio diversification helps stabilize performance.

Ways to diversify the financial portfolio

• Invest in a variety of asset classes: stocks, bonds, real estate, commodities and cash.

• Investment in a variety of companies: both small and medium and large companies. This is especially possible in high-income countries.

• Invest in a variety of countries: Do not limit your investments to one country.

• Use of various investment instruments: ETFs and mutual funds.

It is important to note that portfolio diversification does not guarantee the complete elimination of risk. However, portfolio diversification can help reduce risk and improve opportunities to achieve your financial goals.