“Don’t put all your eggs in one basket” is one of the most famous and oldest proverbs in the investment sector. These words of wisdom encapsulate the idea of not risking all your resources on a single investment, or you could lose everything.
Diversifying your assets is one way to healthily maintain the risk and reward in your investment portfolio. This practice reduces the volatility of the portfolio by spreading your investments and limiting your exposure to only one type of asset. You can accelerate your investment journey by equipping yourself with in-depth knowledge of investment education through various property investment courses in Australia.
Alternative assets incorporate stocks, bonds, real estate, commodities, hedge funds, private equity, and other cash investments that are commonly accessed by most investors, an alternative to fixed incomes and equity securities.
Is diversifying the Portfolio Obligatory
Diversification is considered a key to smart investing. This imparts you a reasonable amount of high-return investments through stable alternatives and offsetting risks. The returns from a diversified portfolio are indeed lower than what an investor earns as a single winning investment. By spreading your assets you are reducing the risks of permanent loss of capital and the portfolio’s overall volatility. Hence, diversifying the assets becomes obligatory.
A Diversified Portfolio
A mix of broad investments like owning 60-70% stocks and 30-40% fixed-income investments is considered ideal while diversifying a portfolio. Investing in a wide variety of different stocks like dividend stocks, growth stocks, value stocks, large-cap/small-cap stocks, tech stocks, healthcare stocks, and energy stocks will be profitable in the long run. Fixed investments like bonds, real estate, REITs, gold, and cryptocurrencies need to be encompassed as their prices don’t ebb and flow with the gyrations of stock market indexes.
Benefits of diversification
- Blends different investments in a single portfolio.
- Yields higher returns.
- Reduces an investor’s overall risk profile.
- Matches the risk and return of the market in the long
Tips to Diversify Your Portfolio by Investing in Alternative Assets
The market condition can shift at any moment and there comes the significance of a well-diversified portfolio which can weather any storms. The investment education blogs in Australia bestow you with additional knowledge of diversification and alternative assets, helping you to attain your financial goals. Here are some important ways to diversify your investments.
Start to invest early – Planning for your financial goals as early as possible through disciplined saving will teach you the value of investments. Once you are mature enough to invest in multiple ways you can start with the basic mix of stocks, bonds, and government securities. As you gain confidence in the above way you can diversify into areas like global markets, international stocks, and real estate.
Spread the stock risk– Stocks are the quickest way to build a diversified portfolio. This involves investing in stocks around various industries, countries, and market caps. This way you are spreading your risks around leading to steady rewards.
Index funds– This offers you instant diversification by investing in stocks through funds, holding a collection of stocks from numerous companies. Index funds, mutual funds, and ETFs (Electronically traded funds) have lower expenses than actively managed funds impersonating the composition and performance of a financial market index like the S&P 500. These funds follow a passive investment strategy with hidden costs and trading commissions.
Fixed income assets – This provides investors with fixed periodic interest payments like bonds, shares, and money markets. Bonds are loans given to the government or companies depending upon their credit ratings and receiving regular interest.
Dollar-cost averaging– An eminent and easy strategy to grow your confidence and portfolio with affordable chunks of money. This entails investing money regularly into a specified portfolio of securities that might add up to a considerable amount over time. You get the dual benefits of cutting down the investment risks and smoothing out the peaks and valleys created by market volatility.
Real estate – People will always need a home for shelter and hence this real asset class portrays inelastic demands. The inclusion of real estate in your investments will protect against unexpected downturns, growing your portfolio while improving the portfolio’s risk returns regularly. REITs are another easy way to invest wherein it increases the portfolio’s returns and reduces volatility.
Get out at the right time– Stay abreast of all the companies you have exposure to in your portfolio for diversification. This helps you to analyze the fluctuations in the market and identify when it is time to consider trimming and move on to the next investment.
The future is uncertain, hence diversifying your portfolio guides you to earn reasonable returns by smoothing out the inevitable ups and downs of investing. Though you can invest in myriad ways, make sure you maintain a manageable portfolio, having time and enough resources to keep up. It is necessary to avoid holding an over-diversified portfolio as not all diversification brings benefits.
However, a manageable diversified portfolio is considered to be the foundation of any smart investment strategy.