If you are a prudent investor then you know it is vital to diversify your investments. Diversification lowers the risk of financial loss as some shares may decrease in value or even go bust, but others may flourish. If you put all your hard-earned savings into one stock and it fails then you have lost everything, but if you diversify you can see major financial gains, especially in the long term.

The Australian market

The ASX, (Australian Securities Exchange) which is the main exchange group in Australia, was formed in 1987 and is now one of the top 15 listed exchange groups in the world. This is where you need to know and understand who trades here to make informed decisions on which companies to invest with.

Australia is a big country with abundant resources, and that shows particularly in the mining, natural resource, and energy sectors. Real estate is also an important sector in the Australian stock market, and as said before, this is because the country is vast with a relatively small population compared to that of countries like the United States, which, while roughly the same size, has about 10 times more people living there.

Investing wisely

Although there are many options for investments in Australia, it is still important to look at the world market and wisely invest in international companies based on current trends. You can buy US stocks in Australia which can be a financially sound decision but only if you are savvy on the stock exchange. Companies can unexpectedly rise and become successful in a short time, like Facebook or Amazon, and see a unique and dizzying rise in the value of share prices. 

On the other hand, companies such as Blockbuster Video, which seemed to be a mainstay in society for so many years have dwindled as their technology has become more and more redundant. Therefore, it is very important to view all your options and follow the stock market with a keen eye so you can see trends and follow companies that may make a significant mark on the world stage. 

Accounting for rises and falls

Of course, nothing is for sure and unforeseen events occur that can make a big difference to the stock market. The COVID-19 pandemic is an example of this, which brought the transport sector to its knees, while the recent Russian invasion of Ukraine has taken a toll on the stock market as well, especially for Russia, where the Russian ruble has been reduced to being effectively worthless. Companies from all over the world have pulled out of Russia, further changing stock prices in those companies.

Australian companies have had their ups and downs in the past couple of years, mainly due to the COVID-19 pandemic, especially because Australia is fairly isolated compared to the rest of the world, and transport and tourism make up major factions of the gross national income, both of which have been hit hard. Hence why diversification is paramount when it comes to investing. 

Many Australians held major stakes in airline companies, who are now struggling but also would have had major shares in other sectors such as mining, technology, and construction, all of which have held up fairly well over the past few years. This means that even if one sector fails, if you have diversified your wealth, then you are going to be in a better place in the long run.