If you actively invest money, the one word you’re sure to hear again and again is “diversify.” No matter the type of investment, experts will tell you that the best way to ensure the safety of your financial future is to keep your money in several different places.
Why diversify?
The main reason experts tell you to diversify your assets is simple: it decreases your risk. If one company or economic sector tanks, you’ll only lose a fraction of your resources. Even if you have assets in a major company that fails, it should be a disappointment rather than a disaster, if you are properly diversified. There are always going to be recessions, but there are also ways to limit your exposure.
Geographic diversity
Most investors tend to invest in companies from their home countries. However, experts recommend diversifying internationally. Markets fluctuate and countries experience economic ups and downs. Recommendations for foreign investments can be up to 50% of your portfolio, depending on factors like portfolio size, the current market, the types of returns you are expecting and your timeline.
Real estate diversity
If you can afford it, it’s almost always recommended to invest in real estate. This provides a hedge against inflation and stock market unknowns. Real estate has historically been a good bet, even with recent hiccups. In addition, you can always sell your real estate, even in down markets.
Sector diversity
Even if you have 10 different stocks in companies such as Facebook, Amazon, or IBM, your investments still aren’t properly diversified. You want to make sure to invest in different sectors, spreading your assets among different industries like technology, energy and retail. Too many stocks in a single industry can leave you susceptible to market dips.
Avoid too much diversification
As always, be careful. Too many stock investments can become unwieldy and difficult to manage. Most experts suggest less than 30. This will allow you to better react to market fluctuations and eliminate time spent tracking and reacting to all of your investments.
Talk to an expert to ensure that your investments are sufficiently diversified and consider the advantages of protecting your assets with insurance whenever possible. Contact John B. Wright, a trusted source of financial and insurance information, today.
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