Diversity is something that comes naturally to most people. Music playlists aren’t just one song endlessly looping. We don’t just watch the same episode of the same TV show over and over again. We branch out. We try new things. We keep a broad spectrum.
So when it comes to the best financial advice, we need to do the same. We need to broaden our horizons.
Now, first let’s break down the standard “spread.” When going for a moderately or acceptably diverse investment portfolio, there are four areas where your money is being dipped. This helps cast a wide net, so if one crashes, you’re not left without other options.
First, you’re looking at domestic stock markets.
Think of this as having preferred workout gear. These are the basic elements, and will probably be the baseline. It’s the investment that you build on, the primary part of your portfolio. They provide the opportunity for greater growth, but also a similarly increased risk.
From there, you should expand into international stocks. Foreign companies issue stocks too, after all.
International stocks give you a bit more of a safety net. They also provide opportunities that domestic ones may not open up, like shares in a Brazilian energy company or a pharmaceutical company in Southeast Asia.
Another option to look into is bonds, no matter how “boring” their reputation might seem.
Bonds have advantages. They’re not as likely to swing down in value as stocks, even if they don’t swing as high up either. They provide a regular investment income and can provide a cushion in case other avenues fail. They’re also great as a safety net, due to their lower risk.
From there, let’s begin to really branch out.
We’ll start with sector funds. These are an investment that covers a specific industry, rather than one company. The focus is narrow and volatile but provides a great deal of diversity.
Commodity-focused funds are also an option. Trade in commodities like oil, gas, and cocoa beans through licensed traders. This provides exposure and equity.
Finally, there’s real estate.
In many ways, it’s hard to get it wrong with real estate. It requires a lot of work to get in there and there’s a lot of taxes and the like involved. However, there are few long-term investments that are as stable or as reliable.
There are very few things that can have a significant negative impact on this market. It takes a long, long time to become profitable, however.
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