During a bull market, there is a ton of money to be made. It seems like every stock you purchase can be resold for profit. However, since there is no way to know for sure when a bear market will come, you need to diversify your portfolio. A diversified portfolio keeps you financially solid irrespective of the market’s condition. Here are some types of investments to diversify your portfolio.
Index funds are something you want to consider adding to your investment portfolio. Doing this allows you to hedge your portfolio against market uncertainty and volatility. Index funds attempt to match the performance of broad indexes. These funds typically have low fees. This means there is more money in your pocket and more money to invest. Management and operating costs are low because it doesn’t take a lot to run these funds.
Individual Stocks and Bonds
You can take your portfolio diversification a step further by including individual stocks and bonds. The ratio of cash, bonds, and stocks you will have in your portfolio will vary based on your end goal, risk tolerance, and timeframe. If you are looking at a long-term goal, which would be about 20 years, your portfolio should be 10 percent bonds and 90 percent stocks.
Diversification doesn’t just mean having a bunch of different investments. It means finding assets that move independently of each other. You want to own enough of a variety of companies so that if one industry or sector fails, you don’t lose everything you have invested. You don’t want to allocate more than four percent of your portfolio to any stock. You want a mix of growth.
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Real Estate and Sector Funds
Real estate funds include real estate investment trusts. This gives protection against inflation. These funds give you a unique opportunity to invest in real estate that you wouldn’t be able to take advantage of if you tried to do things independently. Sector funds are investment funds that focus on a particular segment of the economy. If you include sector funds in your portfolio, you have unique investment opportunities that change with investment cycles.
International Versus Domestic Stocks
You want to have a mixture of international stocks to protect your portfolio from local stock market shocks. A stock issued by a company in the United States will perform differently than stocks issued by non-US companies. Domestic stocks allow you to own a percentage of a company in your home country. You benefit from dividends and capital gains as the stock grows in value over time. Domestic stocks should be a large part of your investment portfolio as they give you opportunities for long-term growth.
Delaware Statutory Trust
Many investors have purchased DST properties for sale as a way of diversifying their portfolio. This judicially secure and effective legal entity lets investors take advantage of higher-grade real estate investments that would typically be outside their price range. With this investment vehicle, a DST sponsor company maintains and acquires different real estate types and packages them as securities. The securities are used to hold title to real estate investments.
Go for a Variety Not Quantity
Just because you have a lot of investments does not mean that you are diversified. Diversification defines the different kinds of investments you have. Therefore, your investments should include real estate funds, bonds, international securities, stocks, and cash. Each investment category allows you to do something different. Stocks are tools that will propel growth within your portfolio. Bonds generate income. Real estate serves as a hedge against inflation. And it has a low correlation to stocks. This means that real estate values can rise if stocks fall.
International investments allow you to grow your portfolio by tapping into a globalized economy. Cash gives your portfolio stability, liquidity, and security. Once you diversify by putting assets in different categories, you need to go through another level of diversification. You don’t just want to have one stock. You need different types of stocks in your portfolio.
There is no one-size-fits-all diversification model. Your risk tolerance, age, and the amount of money you have to invest will all factor in when determining how to diversify your portfolio.