Gold Retired

  • Buying Guide
  • Learn
    • 401k to Gold IRA Rollover Guide
    • #1 Recommended Gold & Silver IRA Solution!
    • Avoid Gold IRA Scams! | (Learn how)
    • Investing in Gold for Beginners | Basics & Tips
    • Top-5 List of Gold Investment Companies | U.S. 2023
    • What is a Gold IRA?
    • What is a 401k to Gold IRA rollover?
    • What is Numismatic Gold Coins? | BEWARE!
    • Gold IRA Pros and Cons
    • Gold IRA Rules and Regulations | 2022
    • Top-5 Gold & Silver IRA Companies | 2022
    • Top 5 Best Gold Coins – Investors Favorite Picks
  • Reviews
    • Augusta Precious Metals
    • Goldco Precious Metals
    • American Hartford Gold
    • Birch Gold Group
    • Advantage Gold
    • Noble Gold
    • Oxford Gold Group
  • Blog
    • Central Bank Digital Currency in USA – Is it being introduced?
    • Why Gold Hedge Against Inflation | one-eyed man in the kingdom of the blind
    • Where do wealthy people invest their money?
    • Gold in War | Why is it a good idea?
    • What Does the Bible Say About Retirement? | Gold & Silver?
    • How to Invest in Gold? | Different Ways You Can Do It
    • Gold Vs. Silver Investment | What makes most sense to you?
    • How to Protect Your 401k From a Market Crash | 6 Best Tips!
    • Gold IRA Scams! | Learn How to Avoid Them!
    • Roth IRA versus Traditional IRA | What Are The Differences?
    • Is it Worth Investing in Gold? Your Freedom is Under Attack!
    • What is IRA Basis? | Simple Explanation
    • 16 coins to have in a Cryptocurrency IRA | New 21/22 List!
    • What is The 702(j) Retirement Plan? | Not a Smart Idea?
  • Our #1 Recommendation

How Can I Diversify And Protect my Financial Future Today?

November 1, 2021 by Eric Leave a Comment

How can I diversify and protect my financial future?

How can I diversify and protect my financial future? The present-day stock market is characterized by high highs and very stomach-churning lows. Investors are therefore required to know how and where to invest their money since the failure to do so can expose them to very massive risk.  Let’s say you pick a company that is having a bad financial year, you can end up losing a huge chunk if not all of your investment.

Whereas there is no defined approach to prevent the occurrence of the highs and lows in the market, there are legal and acceptable diversification approaches that make it possible for you to mitigate risk and uncertainties. Read on to discover what you can do as far as this investment strategy is concerned.


P.S:

See my top-5 list of gold & silver IRA service providers


What is diversification? Diversification

Diversification is a fundamental concept of investing based on the old saying, “do not put all your eggs in one basket.” One of the main approaches to successful investing is learning how you can balance your comfort level with the apparent risk, against the defined time horizon.

Investors who approach investment for retirement very conservatively while they are still at a young age, are likely to run at the risk of a very slow growth rate since their investments do not keep up with inflation. On the other hand, those who try to invest aggressively when they are older end up exposing their savings to the unforgiving market volatility, which has the potential of eating into one’s savings, to the extent that they never recoup their losses.

Diversification is an approach to mitigate risk in your retirement investment portfolio through spreading investment out into various asset classes which include paper assets commodities real estate and so on. This is usually in an effort to minimize the long-term volatility that would affect the portfolio.

The levels of diversification

A well-diversified portfolio needs to be diversified at two levels, which are:

  •  Between asset categories, and
  •  Within asset categories

This implies that, beyond allocating your investment funds to stocks, or other paper assets such as bonds, you need to spread out the money further within the asset categories. Your main duty is to ensure that you identify the Investment segments of the asset categories, that will perform differently when subjected to different market conditions.

By doing this, you can hope that the result of any negative performance in a single investment will be counted by the positive performance of the other investment. Diversification is, as such, perceived as a way to potentially limit investors’ exposure to various asset classes.

The one thing to note, however, is that, as is the case with other investment strategies, diversification does not guarantee the absence of losses, or the presence of gains. Also, Investments that performed well during one economic downturn, may not necessarily perform in the same way during another economic downturn.


Diversification and correlation

Correlation happens to be a very essential concept in diversification, in that diversification will only work if the investment holdings are not positively correlated. Your investment holdings should move in different directions and should have different responses to the states of the market and economy. They should not be perfectly correlated (they should not rise or drop together, or in relation to each other).

Naive and optimal diversification

Individual investors who are not well versed with the computation of the correlation of assets often tend to use “naive diversification”. The technique can be advantageous if careful research is applied during the examination of each asset in the portfolio. Financial professionals on the other hand use the more sophisticated approach known as “optimal diversification”. With this approach, and assess the correlation of assets more effectively, to determine the right proportions of funds to allocate to various assets.

It is quite rare to find Investments that have perfect correlation, but it is common for them to have zero, low, or high correlation.  A negative correlation indicates that the assets move in opposite directions at the same time when facing the same market conditions. This means that, the more Investments with zero or low correlation, the more diversified your portfolio is.


How to diversify your portfolio?

The first step towards the diversification of your portfolio involves the establishment of your asset allocation target, which is simply how you intend to split your investment funds between various assets. Since the ups and downs of the economy affect different investments in different ways, you should know that a strong year for stocks, will be accompanied by a weak year for the bond market, and vice versa.

This means that even if you’re investing for financial goals that are a couple of decades away, and you are quite comfortable with taking on risks in the process, it would be a good idea to keep a small portion of your investment portfolio in different Acids to help with the mitigation of losses of a bad year in say stocks.  Some investors still prefer to have cash investments since they provide immediate liquidity when most needed.

Of late, it has become important for investors to put aside some money for use in gold investments, owing to the nature of gold as an asset, during economic downturns. The fact that the value of gold increases when the stock market is plunging makes it necessary for investors to consider adding a small percentage of this shiny metal to their retirement Investment Portfolio.

Diversification within asset classes

Once you are done with your asset allocation, you can proceed to diversify within the asset classes. In the stock portion of your portfolio, for example, you can consider investing in companies of different sizes, that produce different products, or across different industries and sectors.

You can also consider geography since the firms in different parts of the world are bound to have some unique economic trends which may lead to them generating higher returns in the years that the US stock market is performing poorly.

If you decide to go with bonds, there are several options that you can consider within the broad categories of government debt and corporate debt. The same applies to precious metal investments, where you can spread out your funds between different types of metals, or even different types of coins and bars.  One thing to note, however, is that if you need liquidity when investing in precious metals through a gold IRA, you should hold coins instead of bars.

Are you ready to open a gold IRA today, to diversify your paper assets (stocks, bonds, ETFs) portfolio? Below are highly recommended gold IRAs you should consider.Gold IRA recommendation

See Gold Retired’s Top-5 Recommended Gold and Silver IRA Solutions

OR

See Gold Retired’s Top-5 Recommended Bitcoin IRA Solutions


That will be all for this article on how you can diversify and protect your financial future.  I hope you found it beneficial, and that you can now diversify your portfolio from a more informed point of view. Let me know if you have any questions with regards to diversification, also through the addition of gold and other precious metals to your retirement Investment Portfolio.

I wish you success,

Eric, investor and team member at Gold Retired!

Filed Under: Gold, Retirement

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Trending from blog

  • Central Bank Digital Currency in USA – Is it being introduced?
  • How to Protect Your 401k From a Market Crash | Some Tips!
  • What the Bible Say About Retirement? | Gold & Silver IRAs?
  • Where do wealthy people invest their money?
  • How To Write a Retirement Speech | 6 Tips To Get You Started

Important pages

  • 401k to Gold IRA Rollover Guide | 5-Steps
  • Our #1 Recommended Gold & Silver IRA Solution
  • Avoid Gold Scams! | (7-Minute Read)
  • Top-5 Gold IRA Companies 2023
  • 2023 Buying Guide (gold & silver for any budget)
  • How To Invest In Bitcoin – From Your Retirement Account
  • How to avoid Bitcoin Scams
  • 401k to Gold IRA Rollover Guide | 5-Steps
  • Our #1 Recommended Gold & Silver IRA Solution
  • Avoid Gold Scams! | (7-Minute Read)
  • Top-5 Gold IRA Companies 2023
  • 2023 Buying Guide (gold & silver for any budget)
  • How To Invest In Bitcoin – From Your Retirement Account
  • How to avoid Bitcoin Scams

Useful Links

  • About Us
  • Contact Us
  • Affiliate Disclaimer
  • Privacy Policy

Gold Retired © 2023 | All Rights Are Reserved

  • See #1 Recommended Gold & Silver Firm