How investors can optimise diversification using AI and technology

Sharesight and Diversiview LENSELL® recently came together in a webinar to address the importance of portfolio diversification and how DIY investors and financial advisers can harness the use of technology and artificial intelligence (AI) to optimise diversification, improve portfolio performance, and mitigate risk.

Investors need to balance risk and return

Every investor is different. They have different financial goals, risk tolerance levels, personal circumstances and duration to their goals, but for every investor it’s about balancing risk and return.

With 54% of investors being adverse to risk (2020 Investor Study Report), the challenge is finding a more reliable way to mitigate risk for investors.

While a breakdown of a portfolio’s industries, asset classes or geographies can be commonly found across a range of platforms, investors need a solution that will help them understand the risks associated with their investment portfolio.

"If you invest in 5, 10, 20 securities, will they go down all together when there are market disruptions or will some of them weather the storm better than others? Also, how do you divide your available funds to get the best return?" asks Dr. Laura Rusu, CEO and Founder of fintech company LENSELL®.

To answer these questions and address an important gap in the market, Dr. Rusu developed Diversiview, a tool to empower self-directed investors to get better insights and make better decisions. Not to be confused with a robo-advisor solution, this platform gives investors a greater understanding of their risk profile and the decision to minimise risk or maximise returns is still with the investor.

Diversification is key

According to Dr. Rusu, the media focus is often on returns and very little attention is given to risk, including common risk mitigation strategies such as diversification. This is reflected in investors’ priorities, with a 2020 study showing their top consideration was potential return at 65%, while need for diversification was only 30%. The study also found that 40% of investors did not have a diversified portfolio (2020 Investor Study Report).

"The most important thing an investor should know is how to diversify well" - Ray Dalio, Bridgewater Associates.

Dr. Rusu believes to become better investors we must gain a better understanding of asset allocation, risk of individual investments and correlations between individual investments. The goal is to find a way to maximise return and minimise risk at the same time, and technology allows us to do that in a more reliable, mathematical way.

Asset allocation can be complex and time consuming, with many potential allocations or portfolio positions. Diversiview’s technology can quickly crunch these numbers by combining Nobel Prize-winning theories and research with AI, deep learning and optimisation, delivering a risk and return calculated value and identifying the optimal portfolio that balances minimal risk with maximum return.

How technology can solve investors’ problems

A poll taken during the webinar showed that many investors use spreadsheets to track their portfolio’s diversity. While this is one way to track your investments, it tends to be an inefficient method that doesn’t give you the full picture of your portfolio’s performance, diversification or risk profile, and it is not scalable.

By taking advantage of Sharesight’s integration with Diversiview, investors can access Sharesight’s award-winning performance, dividend tracking and tax reporting features, while also using Diversiview to analyse the health, deep diversification and the risk & return positions of their portfolio. This makes it easy for investors to build tailored, diversified portfolios that suit their risk tolerance and return expectations, while eliminating tedious portfolio admin and manual calculations.

Learn more about portfolio optimisation here: Embedded content: https://www.youtube.com/watch?v=mjikbhUNrXI&t=1s

Optimise your portfolio with Sharesight and Diversiview

If you’re not already using Sharesight and Diversiview, what are you waiting for?

Sign up for a free Sharesight account to get started tracking your portfolio’s performance, and sync your portfolio to a Diversiview account to get deep insights into your portfolio’s diversification and risk profile.

Disclaimer: The above article is for informational purposes only and does not constitute a specific product recommendation, or taxation or financial advice and should not be relied upon as such. While we use reasonable endeavours to keep the information up-to-date, we make no representation that any information is accurate or up-to-date. If you choose to make use of the content in this article, you do so at your own risk. To the extent permitted by law, we do not assume any responsibility or liability arising from or connected with your use or reliance on the content on our site. Please check with your adviser or accountant to obtain the correct advice for your situation.

FURTHER READING

• Diversiview by LENSELL integrates with Sharesight

• 7 reasons why Sharesight is better than a spreadsheet

• What’s in a Diversiview analysis?