A diversified portfolio is a portfolio that gives an investor an exposure to a broad set of financial instruments, so assets and investment opportunities. So that really means having a broad coverage of what the different characteristics in terms of financial markets and asset classes are. So that means exposures to equities and within equities, for instance, home equities, international equities, emerging markets, in the fixed income side it could be exposure to credits, treasuries, long term treasuries and so on and so forth, such that the portfolios have one of the key benefits that we identify, which is really the diversification benefit. That is one of the key principles for building multi-asset portfolios. And that really comes from the fact that this exposure to different assets that are not perfectly correlated would bring risk mitigation, risk reduction in the portfolio without giving up on the return potential.

And that's why diversification is considered in finance the only free lunch, so to speak. We consider two main factors. The first one is what we call an investor specific factor. So these are characteristics specific to the investors that we're talking about. So their level of risk tolerance, for instance, how much risk are they willing to take with the portfolio?

Also, another one is the objective of the portfolio. So what are they trying to achieve with the investment opportunity? Last but not least, related to the investor specific factors, is the time horizon. So are we talking about a portfolio that is meant to perform over five years, ten years or more? The second set of factors is what we call market specific factors.

So really this is about the capital market assumptions, so what I call the big three and it relates to what are the expected returns associated with each asset and asset class that are considered in the portfolio, their level of risk, so as a proxy the volatility that we're expecting from the different assets in the portfolio, and the cross correlation, so what does the correlation between the different assets and securities that are considered in portfolio will look like into the future? At Vanguard, we have four key investment principles that we consider are essential for any investors for their long term success. The first one is having a clear investment goal and objective. So that really relates to what are we trying to achieve again with the portfolio? Is it meant to be a portfolio that is for someone who is retiring?

Is it meant to be a portfolio for saving for a specific occasion? It could be for buying a house, it could be for education for their children, it could be for any other objective that they might have over a certain time horizon. But having a clear plan of what the objective is and what that objective is meant to look like into the future is essential for the investment success.

The second principle is what we call balance, and this goes back to the idea of diversification. So making sure that the portfolio is as diversified as possible, such that, again, we can have risk mitigation through the diversification benefits of the different asset classes. The third aspect is minimising cost really. Right. So keeping costs as low as possible. This is one of the key aspects that investors have direct control over that is not associated to market risk.

There is no uncertainty around it. And what we have been seeing by doing research for the past ten years is that is one of the key factors for a long term success in multi-asset portfolios. Last but not least, is discipline. So keeping a disciplined approach to the investment objective and portfolio. That really means not getting too emotional during the investment rise and even when markets can be turbulent and volatility kicks in, sticking to the plan, being committed to it and having confidence on the objectives that are being identified at the beginning and the plan that has been set forth.