By diversifying their portfolios, investors are able to reduce their overall risk, while increasing the return on their investments. Wouldn’t you like to learn more about the best ways to diversify your portfolio for higher investment earnings?
A major key to success in investing is balancing your risk level with your desired timeframe. This is why it’s important to ensure you are carrying just the right amount of risk versus reward. For example, You’re in your early 20’s and just starting a retirement account. In this situation, you wouldn’t want to be too conservative with your investments. If you are too conservative, then you may discover the growth of your investment is not keeping up with the rate of inflation. On another example, you’re reaching retirement age and add risky investments to your portfolio. This would not be good at that time of your life to start taking high-risk investments. You shouldn’t leave yourself open to the volatility of the market.
Therefore, to balance your risk and reward appropriately, it’s a smart idea to diversify your portfolio. By doing so, you can help eliminate both risk and volatility in your portfolio. Additionally, you can reduce the amount of stress you incur watching the numbers. Just remember, diversifying doesn’t guarantee you a larger profit or that there will be no losses.
When making an investment, investors are faced with two primary types of risk:
Ensuring your financial portfolio is diversified to protect you against market changes, is key to successful investing. Take a quick look at our example to see why it’s a good idea to ensure diversification within your portfolio.
Let’s say your portfolio only had stocks from a coal company. If the government decided to start offering tax breaks to households using 100% renewable energy, your financial portfolio would likely take a hit. This is due to the coal company losing business as more households switch to renewable energy for the tax breaks.
However, if you had diversified your portfolio with both the coal company and renewable energy company, only a portion of your portfolio would have taken a hit during the market change. And, your stocks in renewable energy would have likely seen an increase. Thus, balancing out your loss with the coal company.
On the other hand, you could diversify even more. You would want to do this as both coal and renewable energy have a close relationship. This means they may face a downturn at the same time. Therefore, when practicing diversification, it’s important to not only choose a variety of companies but a variety of industries and asset classes.
With a number of companies to invest in, your options as an investor truly are limitless when it comes where to invest your money. However, there are a number of components that make for a well-rounded financial portfolio, which include the following:
When are trying to diversify your portfolio, there are a number of factors you must take into account. First, remember that diversification is not about maximizing returns. It is about limiting the impact the market has on your portfolio. This is why it’s key to take your time and come up with the best possible diversification strategy. One must also remember that over time, your strategy will change as your risk tolerance and time horizon begin to change.
For example, let’s say you started investing when you were in your early 20’s. At that time, you likely had a high-risk tolerance and over twenty years to build your portfolio up. Therefore, you were likely invested in some riskier stocks with a larger potential for growth. However, if you are nearing retirement age, you may consider moving some of the riskier investments into ones with less risk. This is due to needing the money in a shorter timeframe. Thus, you don’t want to risk everything you have when you need to cash out soon for retirement.
Real estate is a great way to diversify your financial portfolio and recently has become available to the average investor. Not long ago, only the uber-rich or individuals with the “right” connections could invest in private real estate deals. However, that’s simply not the case anymore.
With the passing of the Jumpstart Our Business Startups Act in 2008, crowdfunding real estate platforms are now available. Even more so, they are allowing investors to easily start investing in real estate with low minimums. Simply browse the pre-vetted investments available on the platform. Then, review the details and find one that fits your needs to start investing. It really is that simple.
At DiversyFund, our platform offers exclusive investment opportunities to investors. These are fully vetted and approved by our team that has more than two decades of experience in real estate investments. By choosing to invest via a platform like ours, you are able to spread your investment dollars in a multitude of high-end income and growth offerings instead of just one. Thus, diversifying your real estate portfolio even more than was ever possible before. Check out our latest investment offerings here!
Most of us are familiar with the stock market. But have you ever wondered what the institutions and high net worth individuals are investing in? Alternatives. We’re here to break the news to everyday investors—stocks and bonds are not the only investment vehicles out there! From art to coins, farmland to venture capital, natural gas…
With all the different types of real estate to choose from, investors are often left wondering where to start. We explain the step by step process that goes into finding and acquiring high-potential real estate and best practices for investors to source real estate opportunities to add to their portfolio. Types of Multifamily Real Estate…
Investing in real estate is a great way to increase personal wealth. That’s why a majority of America’s wealthiest individuals have a substantial amount of their portfolio in real estate. Many investors turn to single-family housing to start making money right away. However, this short-term strategy may not play out as well in the long…