Everyone has investments for the future. If you have a pension that is a good start, but everyone should be doing a little more to prepare for their retirement. If you begin to invest in the stock market you have begun to build a portfolio of investments with your funds. Diversifying your investments, and splitting your funds among different investment opportunities, protects you from sudden changes in the marketplace.
If you had invested in one single stock and it ran into trouble you would potentially lose everything. If you invest in multiple stocks you reduce that risk, and if you make investments outside of the stock market you are even better protected from economic crises. Every investor should find ways to diversify their investments, and this compilation of investment opportunities should give you plenty of options to protect your wealth from dips in the stock market and inflationary forces. Pick one or two of these and you are well on your way to diversification.
Going For Gold
This precious metal is often the first prize in competitions, and it wins the first prize here for its diversification properties. Gold is always in demand and in times of economic strife it often becomes one of the world’s most sought-after commodities. Most investors and many investment banks use gold to protect their wealth and reduce their overall risk exposure, and some even hold the gold themselves in vaults and safety deposit boxes.
If you want to invest in gold, get help from the professionals at Physical Gold. They are the United Kingdom’s top gold bullion suppliers and have decades of experience in buying and selling gold as well as storing it for investors. With their help, anyone can start diversifying their investment portfolio with precious metals like gold and silver, and keep up to date with the latest prices per ounce.
The Name’s Bond…
One of the primary ways to diversify a portfolio is with bonds. For many years investment banks and financial advisors used to split investment funds between stocks and bonds and use this ratio to assess risk. The downside of investing in any type of bond is that they too can be affected by sudden downturns in the market and inflation, and there is very little that can be done to mitigate it.
Bonds are generally thought of as a safer investment than stocks. There is a lot less volatility in the bond market and they are much more predictable, but there are still risks. Most bonds are an investment in a company, known as corporate bonds, and these are a way for the company to raise some extra cash to invest in the business. They usually pay interest on the principal twice a year, and if held until maturity bondholders get the entire principal investment back. If the company collapses you have very little recourse to get your money back, which is where the risk comes from.
Index Funds Are Low Cost Diversification
These financial products often form the cornerstones of retirement accounts. They track or match the financial performance of an index like the FTSE100 (Financial Times Stock Exchange 100 Index) or the Standard & Poor’s 500 Index (S&P500). These funds have low operating costs and do not require a significant sized investment at the beginning, making them a cheaper way to diversify.
These funds follow the benchmark of the indexes they follow, not the price of stocks themselves, which insulates them from some negative market forces. They are also a lot easier to manage, needing less assessment and observation while still providing a decent return. The profits on index funds are usually smaller than you would experience investing directly in companies through stock, but your exposure to risk is greatly reduced as you are backing the performance of 100 or 500 companies instead of one.
There Is Nothing As Safe As Houses
There are many ways to diversify your investments that do not include stock market speculation, commodities, or indexes. Investing in property can be incredibly profitable, especially if you are buying to rent a property out. It does require some significant upfront funds, but the money you put into a property is very safe compared to just about any other type of investment. If property prices crash and never climb back up, everyone will have bigger problems on their plate than a loss of investment.
Property, whether residential, commercial, or industrial, is expensive which can make investing in bricks and mortar prohibitive for some people. You can form a group though, or a partnership, and combine forces and funds to get into the rental market. The property gains value over time as an asset, while you also gain profit from rental charges. It is also possible to mortgage a property based on the rental income and claim a small amount each month in rental profit while your tenants pay off the mortgage for you.
No School Like The Old School
Possibly the oldest type of investment for diversification is investing in money market securities like treasury bills (T-bills), commercial papers (CPs), and certificates of deposit (CDs). These types of investments are relatively safe but with a relatively low yield. The advantage they have over other investment opportunities is that they can be liquidated quickly, so if you suddenly need access to your money for whatever reason you can get it.
Treasury bills are probably the safest investment available. These are government backed securities that are unaffected by market fluctuations. The profits reflect their risk and are very small in the short term, but they can grow over a year and you can reinvest every financial year, making them a part of many retirement accounts. They also make a great hedge against higher risk investments, helping to offset the potential losses from stocks. UK Treasury bills are issued weekly or ad hoc, and are offered with terms of between one month to one year.
Cold, Hard Cash
Never overlook the properties of money itself as an investment diversification. You are always going to need access to some cash flow, and liquidating most assets takes time and you may incur fees or penalties if you close them out ahead of schedule. Cash is obviously affected by inflation, and interest rates have been historically low for more than a decade, keeping returns minimal.
Money in the bank does protect you from market selloffs or crashes. If the worst happens you can withdraw your funds and keep cash in your pocket when many others in the market could lose out a lot. Having a small amount of your portfolio held in cash is a good idea if you are looking for somewhere safe to store your wealth and you do not mind losing a little value to inflation.
Whatever you are investing for you should be diversifying your portfolio. There is no return without risk, and by spreading the risk around a bunch of safer investments you massively reduce your exposure to economic crises, market selloffs, and inflation. If you have a financial advisor, speak to them about diversification and investing in precious metals or index funds. You may regret it if you don’t.