If you are asking yourself questions related to “how to preserve my wealth through diversification”, then you are in the right place. In today’s article, we shall go through this at length to see to it that, so that you can pick the information that will help you make a more informed decision as you protect your wealth from different market forces. Read on to discover what you should do to achieve true wealth diversification.
When the entire economy is performing well, it does not make sense to sell any stock at less the amount of its purchase price. We can, however, not be very sure of how things will be looking like in the market in the future, so we need to create a well-diversified portfolio that will withstand harsh market conditions, to ensure that we do not end up discarding our assets at a throw-away price.
The old saying has it that you should not put your eggs in one basket. This is classic wisdom, from which the concept of diversification stems. It is one that every investor should strive to implement right away so that they can be on the safe side when the economy comes crashing down.
What is diversification?
Diversification is a term that many financial planners, hedge fund managers, and common investors talk about a lot. This is because it is an investment strategy that involves blending different investments in one portfolio. The reasoning behind this is that having a variety of assets can help you achieve higher yields since you can maximize the returns on every single asset. The strategy also suggests that those who have uncorrelated assets can lower their overall risk.
This term is not a not concept. After having gone through tough times in the economy from the days of the Great Depression to the dot-com crash, and then in the Great Recession, investors have learned the importance of shielding their assets from risky market forces.
At this juncture, you would think to yourself, “why not wait until things have started getting out of hand in the economy, then I can make my exit, or switch to another asset?” Well, the truth is that by the time the present-day average investor reacts to the changes in the market, about 80% of the damage is usually already done on their portfolios. As you can see, offense is your best defense really, hence having a well-diversified portfolio is not an option in today’s economy.
How then can one get it right when it comes to diversifying their portfolio? (Including a retirement investment portfolio)
Spread your wealth
Equities are an all-time favorite for many investors. You should, however, avoid putting all your money in a single stock, or in one sector. It would be a great idea to actually create a virtual mutual fund, in which you invest in a handful of companies that you know and trust, and that you possibly rely on in your day-to-day life.
Some people will, however, argue that investing in the equities of companies you know can leave you very retail-oriented, but doing your research about a company, investing in it, and utilizing its goods and services is such a healthy approach to investing.
You can also invest in commodities such as real estate, ETFs, and REITs. I also like to recommend the allocation of a small percentage of investment funds to precious metals such as gold. The reason behind this recommendation is that gold has proven to be a go-to safe haven during economically challenging times. Anyone who wants to survive an economic crash can benefit from having a couple of gold coins or bars (though coins are more preferred due to their liquidity).
Another viable option is alternative assets such as cryptocurrencies. With sufficient information and advice on which crypto assets to invest in, you can make a huge impact on your financial status. I’d however suggest that you invest in cryptos through a cryptocurrency IRA, to avoid losing a lot of money through the taxation of your proceeds.
Do not overdo the diversification of your assets- you should always have a portfolio that is manageable-by having about 100 different vehicles, you may only end up stressing yourself as you keep tabs on all of them. about 30 assets (at most), should be sufficient for the average investor.
Keep building your portfolio
You should add to your investment portfolio regularly. Say you have about $20,000 to invest, you should use the dollar-cost averaging approach, that investors rely on to smooth out the highs and lows in the market. With this method, you invest your money regularly, so that in the long run, you can maximize your potential earnings.
The dollar-cost averaging method is quite effective for assets that are highly volatile but is equally good for investors who want to gradually grow their entire portfolio without straining themselves by investing a huge amount of money right from the get-go.
Watch out for the fees and charges
Diversification is a good strategy, but it will only be beneficial is you understand the commissions you’re paying to invest in different assets. Charges, which most investors underestimate, can quickly add up, and without a proper approach to monitoring them, you can end up with significantly lower returns than you expected.
My advice would be that you be aware of the amount of money you’re parting with in the form of fees and charges, why you’re parting with them, as well as what you are getting in return. This, however, does not mean that you go with the cheapest choice without doing extensive research to establish that the services offered are of the best quality. Also, be sure to keep yourself updated on any changes to the fees.
Diversify your retirement investment portfolio by opening a gold IRA through one of the companies recommended below:
That will be all for this article in which we have addressed the central topic on “how to preserve my wealth through diversification”. I hope that you pick up the three tips and that they’ll be helpful to you as you diversify your portfolio. Let me know if you have any questions with regards to this topic, and whether you’d need some help adding alternative assets (gold in this case) to your portfolio.
I wish you well,
Eric, Investor and Team Member at Gold Retired!