Investors can never truly know how the bear market can turn out to be for certain. Therefore, it’s important to invest your money in many different ventures as possible to minimize your financial loss in case one market fails. Diversifying investment portfolios is an essential strategy for financiers. It’s something that veteran investors master to the point of an art. Beginners, however, may struggle. If you are an investor looking to diversify, here are several useful tips to follow:
Include Low-Risk Options
When you are trading stocks or investing in real estate, you need safer, very little risk involved, investment options to guarantee an income on the long run. These will be essential if one of your ventures fail in a major way. You will need something to fall back on. Therefore, you should diversify your portfolio by investing in the least risky way. Currently, the investment options where risk is minimal include savings accounts, fixed deposits and government bonds. Most of these are insured, so you can have at least a portion of your money back if the bank fails.
Join a Pool of Investors
One of the best ways to invest if you are beginner is to put your money into high yield mutual funds that are professionally managed by financiers. These essentially pool funds from multiple investors, and a lump sum is invested in stocks, bonds, the money market and other assets. Mutual funds are automatically diversified to protect against risk of one market. They are also handled by experts, which is an advantage if you are just starting out. Consider pooling at least some of your money into one of these to diversify your portfolio with little effort.
Inflation and economic downturns are the sworn enemies of investors. In case the unthinkable happens, a good investor should have funds hedging against loss. Precious metal is a time honored and well tested investment option that protects funds against dangerous fluctuations in currency. Precious metals, like gold, are inversely valued against the US dollar, so that if the currency is devalued due to inflation or recession, your precious metal stocks will go up in value. Therefore, do not overlook previous metal in your investment portfolio.
It’s difficult to say how the US government, or any other government, will fare five years from now. Do not put all your resources with stocks of one currency. Buy foreign stocks in foreign currencies to protect your overall portfolio against inflation, economic downturns and political instability. Mix up your stocks and buy from other stable governments in Europe and Asia to increase your revenue and dilute your risk.
Instead of buying stocks of companies through a financial firm, you should consider investing directly in a startup. There are countless startups crowdfunding capital in return for a share of stocks or revenue. You can find them on sites like Kickstarter. Diversify your portfolio with some of these for commission-free returns.
You should begin diversifying your investment portfolio the day you begin investing. Do your research, talk to professionals and think outside the box to solidify your returns.