A guest article from Evan Fischer
You want your portfolio to be as resilient as possible, right? The easiest way to strengthen your finances is to diversify when you begin to construct your financial plan. When the market becomes volatile or unstable, a well-diversified portfolio will protect you and also make sure that your returns improve for a longer duration of time. Here are five ways you can help yourself and your financial situation through diversifying:
Stocks and bonds
This is one of the most basic strategies for diversifying that many investors ignore. You may think that bonds will drag down your performance, or that the stock market is too tempestuous to consider. You shouldn’t invest too much into one or the other, but try to find a balance depending on the volatile nature of the market: a younger investor may have the time and assets to allocate funds towards stocks, but it’s a risky investment. Likewise, too much focus on just bonds might prove to be a mistake, as bond prices may decrease in upcoming years.
A variety of countries Open communication paths have made global investments a viable possibility for most investors, and you are now able to invest in foreign stocks. You shouldn’t feel like there is a great mystery surrounding foreign markets. When the U.S. dollar weakens, you still have money invested in other kinds of currency, and these types of investments are now easily accessible.
Style and investment
Large cap stocks have been outperformed recently by small and mid-sized stocks. That isn’t always the case, but investing in a variety of different sizes and values gives you a diverse edge in case one style out performs another, trends that tend to change from decade to decade.
If you have no experience or real understanding of what makes the different varieties of art worthwhile, you can still diversify by investing in it: you just need to hire a professional. This can be another artist, a museum curator, a critic, or a collector. Investing in art doesn’t mean that you can appreciate the piece, however; it needs to be stored as it appreciates. This option is ideal for a long term investor. You should wait at least eight years before you consider selling. Follow the signage posted in the museum for ideas about showings that might interest you.
In order to prevent your allocation weightings from becoming too heavy in certain areas over the course of time, you should rebalance your portfolio at least once a year. If you hope to successfully rebalance, you need to sell what works and buy what seems less profitable. Though this doesn’t make sense on the surface, in order for the rebalance to be successful, you contrive to become disciplined with an approach that will probably perform better over a longer period of time within the parameters of the risk tolerance you established and your personal return objectives. Your portfolio will continue to grow and change as your own life does as well, but the principles of diversification remain firm.