All successful investors, fund managers, and financial advisers have diversified portfolios. The reason why people need to put their money in different financial channels is that not all investments are stable.
Apple’s stocks may be climbing right now because of the global success and recognition of its products, but this could all change in 5 years time. Because we can never be sure of what the market will do, we must never forget the importance of a well-diversified portfolio.
Here are some tips on how seniors can properly diversify their portfolio.
Spread your money on well-performing assets
Don’t just focus on the stock market. There are plenty of investment vehicles to choose from such as annuities. An annuity is a contract between yourself and an insurance company in which the firm will make periodic payments to you at a later time once specific conditions have been met.
On the other hand, you can also create your own mutual fund by investing in several companies that you trust — firms that have been operating for a long time or ones that you have personal interest in or have done personal research on.
Advisers may tell you that investing in companies that you know will leave you heavily retail-oriented (because people use a variety of products every day) but knowing and trusting a company can be advantageous when making investment decisions.
The Motley Fool has a list of the best Index Funds that you may want to check before adjusting your portfolio in 2018.
Over time, commodities tend to provide returns that differ from stocks and bonds. Not all commodities move inversely proportional to equities but they provide an alternative that helps investors manage market volatility.
Individual commodity prices can fluctuate radically due to factors like supply and demand. Oil, for example, becomes pricier when there’s high demand coupled with low supplies.
FXCM suggests that oil is one of the available commodities that have an inverse correlation with the stock market, making it an ideal investment for diversification. In layman’s terms, when oil prices are up, equities decline and vice versa.
It has been a tough 3 years for oil but Forbes reports that while it may have been hit by low prices, oil is now ready for a recovery. Oil may be a worthy investment to look at in 2018.
Consider bond funds
Bond funds are mostly created to mimic the broader market. That said, while other investment platforms specialize in high-yield bonds, short-term debt, and emerging markets — all of which are usually risky — bond fund investors can expect a monthly payout of the income earned by the fund and that payout is proportional to the risk of the agency issuing the bond.
The Street lists some of the best performing bond funds in 2017 that should carry over to 2018 including Voya Securitized Credit P and Colorado Bond Shares Tax-Exempt. Investors who buy bond funds either through the U.S Department of the Treasury or a broker will receive coupon payments twice a year.
Know when to sell
Buying and holding investments for the long term are good but just because you’ve had them for a long time doesn’t mean that you shouldn’t let them go. Sentimental value has no place in the markets. Don’t ignore market signals and financial advisers when they recommend the best time to sell and replace a currently held invesmtent because historical data, economic status, and financial indicators say so. Remain in tune with the overall market conditions, keep what you should, and let go of potential liabilities. Never be afraid to quiz your financial adviser about what your own research indicates.
Pandora, for one, may have had a decent year in the year 2000. However, from 2001 onward, the company has never turned a profit. Over the past 12 months, it lost over $560 million on a $1.46 billion revenue. It is low-performing stocks like this one that seniors should avoid at all costs.
Keep building your portfolio
Don’t forget to regularly add to your investments. Don’t just invest in something and then forget about it for several months. Lump sum investing is the key to a diversified portfolio. If you have $5,000 to invest this year, use dollar-cost averaging. This method is often used in order to take advantage of the volatility of the market.
Investing terminologies can often cause confusion. If you need help in identifying what those financial terms mean, the Silver Life has an ABCs page for that.