When you invest, you do so with the intended purpose of profiting on your initial investment.
When you invest in equities, your aim is to have your shares appreciate in value to sell them at a gain. When you invest in Percent deals, you do so to earn interest on top of your initial investment over a set duration, which accrues based on the agreed-upon schedule when you invest in a Percent deal.
Yet no investment is without risk.
Equities you invest in today could be valued less than your initial investment or even at zero tomorrow. Parties involved in a Percent deal could fail to meet their obligations, causing you to lose some or all of your initial investment. Every investment carries a level of risk, and it is ultimately up to you, the investor, to perform your own due diligence, assess your risk, and assess all things pertaining to the investment that will ultimately reside in your portfolio.
Investors who wish to mitigate risk often opt to diversify their portfolio not only across different investment types, but across multiple investments of the same type as well. This is known as diversification, and is an age-old strategy on limiting downside risk or losses, while still priming your portfolio up to appreciate in value.
How Investment Diversification Works
While you can always invest in single investments, properties, and deals, doing so increases your downside risk. If your sole investment loses value, either partially or completely, you are left with less capital than when you started.
Conversely, investing in multiple different investments for the same amount limits your downside risk. If one investment out of many depreciates or fails outright, the others could help offset some or all losses incurred.
This is especially true when investing across different sectors and/or asset types, like concurrently investing in equities and alternative investments (like those on Percent). If you only invested in technology stocks and the technology sector faces a downturn, chances are greater that all of your investments will depreciate in value. Yet if you are invested in technology stocks, real estate properties, bonds, and assorted alternative investments, your other investments could still appreciate in value, with their gains offsetting any losses you incur in the stock market.
In the equities market, investors can opt to invest in stock-like vehicles offering broad exposure to tens, hundreds, or thousands of assorted investments. Index funds, exchange-traded funds (or ETFs), and mutual funds are all different investment vehicles offering investors a single entry point into investing, while spreading their initial investment across small percentages of other investments. Each stock held in these funds has its own fluctuations, and could appreciate or depreciate in value. Yet because these funds are largely diversified, the decrease in value of one holding will not necessarily decrease the value of the fund overall, as its losses can be offset by the gains of other holdings.
Diversification of Percent Investments
When you invest on Percent, you are exposed to potential gains (the interest gained during a note’s duration) and potential losses (risk of losing part or all of your principal investment), like all investments. Yet this is precisely why 62% of Percent investors invest in five or more deals: to limit their downside risk should a note investment go awry. Investing in multiple Percent notes affords you greater exposure to different types of notes while limiting downside risk.
Investors recently gained the option to invest in Blended Notes on Percent. Similar to the aforementioned funds, these Notes give investors a single entry point into private credit investments, allowing for investors to gain exposure to multiple Percent notes with one principal investment. Should one of the notes contained within a Blended Note suffer partial or total loss, the other notes would help mitigate against that loss with their own accrued interest, all while providing investors with exposure to a broad spectrum of note types.
How you invest is up to you, your level of comfort and expertise, and the advice given by your financial professional. It is pertinent to always perform thorough due diligence and research on any investment before you invest. Private Placements are risky investments and carry a high risk of default and principal loss, and while Percent does their best to diligence the best opportunities, there is no guarantee of return of any part of your investment.
Yet if you are looking to protect against risk and loss of your principal investments, diversifying your portfolio is arguably the most effective way to safeguard your portfolio.
To learn more about Percent Blended Notes and start investing, click the button below.