Close Popup Icon
New Minimum: Begin Investing With Just $500. Get Started Now!New $500 Minimum. Invest Now!
https://diversyfund.com/diversification-something-now-heres/
Investing 101

How to diversify your portfolio

Diversification is just a fancy name for the saying: “don’t put all of your eggs in one basket.”

Diversification is when you invest in many securities, and most investment professionals agree that diversification is the most important component of reaching long-range financial goals while minimizing risk.

What is a portfolio?

Investors refer to a person’s collection of investments as a “portfolio.” If you own stocks, bonds, and rental properties, that’s what your portfolio consists of. Your portfolio might be further divided into sub-asset classes like large-cap stocks, mid-cap stocks, small-cap stocks and international stocks. Ideally, a portfolio should hold a variety of investments, not all of which are highly correlated to each other.

Why is diversification important?

Many factors that change in real-time affect the price of stocks, bonds, and alternative assets: individual company events, industry trends, world occurrences, government actions, among others. This is why diversification is a powerful weapon against risk. By allocating investments among various financial instruments, industries, and other categories, it helps maximize return in different areas that would each react differently to the same event.
There are different forms of diversification; you can diversify both among and within different asset classes. When you diversify within asset classes, you divide the money you’ve allocated to a particular asset class among various categories of investments that belong to that asset class. Stocks are one asset class, bonds are another, and real estate is another. This form of diversification is common among the wealthy– but you don’t have to be wealthy to diversify.

The benefit of Investing in different asset classes is best demonstrated by the Yale Endowment. The Yale Fund has boasted one of the most successful institutional track records over the last 20 years.

diversification

In 1985, 80% of its endowment dollars were in stocks, bonds, and cash; and over time the fund dropped that down to 10% of the portfolio

Today, 90% of the endowment is now in non-traditional asset classes that are illiquid resulting in pricing that does not fluctuate with the stock market and leads to higher expected returns.

The Yale fund made a conscious decision to minimize the role of stocks and bonds in its portfolio and diversified into alternatives like real estate and private equity investments.

David Swensen, the manager of Yale University’s $27 billion endowment fund, strongly supports the concept of portfolio diversification. Real estate is one asset class Swensen recommends investors allocate anywhere between 15 and 20% of a portfolio into. Since real estate responds to different market forces than stocks or bonds, this insulates a portion of your portfolio from market corrections and crashes. In his book “Unconventional Success,” Swensen states that real estate risks and returns fall somewhere between those of bonds and equities.

Diversification in Real Estate

Owning real estate investments remains one of the most effective means of growing wealth. Unlike traditional investment vehicles such as stocks, real estate is not tied to the stock market or the market fluctuations in major financial centers. Real estate is also the world’s oldest asset class. For centuries, real estate ownership has been the hallmark of the wealthy and elite in most societies. Stocks weren’t even invented until 1602 by the Dutch East India Company and to this day, real estate continues to make large numbers of millionaires, perhaps more than any other asset class.

Since real estate is a tangible investment asset, it is more dependent on the local market. Therefore, in many areas, when the value of stocks and other traditional assets decline, the value of real estate investments may actually rise.

diversification

In fact, if you look over the last 30 years, you can see that real estate has beaten the stock market by a significant margin.

If there is one thing that remains the top priority for all investors, it’s having a well-diversified portfolio. Real estate investment can play a vital role in optimizing portfolios.

 

________________________________________________________________________________

DiversyFund’s crowdfunding platform is dedicated to offering everyone the opportunity to diversify their portfolio. We are opening up what used to be exclusive wealth building opportunities to everyone. Crowdfunding allows us to aggregate dollars to purchase real estate, we develop it manage it, receive the cash flow, and then divide the profits.
We combined our decades of real estate expertise with technology to make investing even more cost-effective for people like you. Now, you don’t need to be a millionaire or an expert to invest in real estate. Multi-million dollar investment opportunities can be shared for as little as $5,000, and everyone can join in.

 

Related Articles

How to Create Your Personalized Investment Roadmap
  • Investing 101

How to Create Your Personalized Investment Roadmap

“A goal without a plan is just a wish.” – Antoine de Saint-Exupéry If you are like me and many other people, you probably enjoy traveling. The first thing I do when I decide to go on a trip is figuring out the destination. Once I have picked a destination the next step is to…

Recession-Resistant Investments That Can Protect Your Portfolio
  • Investing 101

Recession-Resistant Investments That Can Protect Your Portfolio

You can’t seem to escape it—everyone keeps talking about the next Great Recession or how the stock market is up one day and down the next. This can leave investors on edge and looking for ways to protect themselves, and their portfolios! We will start by saying that no investment can be 100% “recession-proof.” However,…

4 Methods to Accelerate Compounding
  • Investing 101

4 Methods to Accelerate Compounding

Compounding builds value. Its usual domain is finance, but compounding applies to other things, too. Isaac Newton said this: “If I have seen further, it is by standing on the shoulders of giants.” Compounding grows value – whether the value is denominated in knowledge or in financial terms. Isaac Newton compounded his knowledge with the…