The investment market is enormous in 2023, meaning there are plenty of opportunities to explore. This is great because you don’t have to put all of your eggs in one basket, which may leave you at a heavy loss. Instead, you have the chance to invest in different markets that won’t all crash at the same time. In this article, we discuss six tips for diversifying your investment portfolio.
Go Deeper than Bonds and Stocks
The traditional investment landscape involved a false sense of diversification split across stocks and bonds. While it’s good to invest in a selection of different stocks, many of them are pinned down to the same market trends, which spells a recipe for mass loss.
Now, there are plenty of markets to explore that aren’t locked into the same trends. For example, if you invest in a number of tech companies, you can offset dips in investor interest by having a completely different market like real estate in your portfolio.
Know All the Risks for Every Asset
Even though there are more investment choices than ever before, it’s important to fully understand the risks involved with every market. For example, if you have commercial real estate in your portfolio, there’s a unique risk catalog including a slowing market, property damage, ongoing maintenance, and tenant actions. To mitigate these niche risks, you’ll need extensive insurance from a provider that covers a wide range of areas like self storage insurance, gas stations, shopping centers, warehouses, and much more.
Make Life Easier with Target-Date Funds
There are many different funds to help diversify your profile, but target-date funds can be one of the most effective. These mutual funds let you choose a date to reach your goals, whether that be retiring or buying a house. When you have plenty of time left until your target date, the fund managers will make riskier investments in an attempt to bring in more profit. Then, as your target date is arriving, fund manager actions will switch to safe investments like cash or bonds.
Explore Index Funds
If your available funds are low, then index funds are a great way to diversify without the heavy price tag. Buying mutual funds or EFTs that include expansive indexes lets you buy into diversification at next to nothing. As well as being cheaper, adding index funds to your investment portfolio is much easier than building from scratch.
Rebalance Regularly
Some of your investments will fail and some will succeed, but they’ll all influence the overall weight and size of your portfolio. For example, it’s recommended to invest no more than 5% of your portfolio in cryptocurrency. If your crypto does really well and starts to overtake other asset classes in portfolio percentage, you can cash out and assign some of the profits to other investments.
You should be rebalancing your portfolio at least every quarter, but you may need to do it more regularly depending on market movements.
Think Globally
There are plenty of investment opportunities to explore in the US, which can make ignoring the rest of the world feel logical. However, the economy works on a global level, so you have to step back and look at how everything moves together. By doing this, you can find unique investment opportunities that you may not have considered before.
Diversifying a portfolio means that you’ve accepted future profit is never a guarantee, no matter how good an investment may initially sound, and you’ve taken the necessary path to protect yourself financially. To make sure you stay on track to meet all of your investment goals, remember to rebalance regularly and review your priorities and circumstances.
