Investment Diversification
GOLLIHUGH FINANCIAL SERVICES
4 DUNNINGTON COURT
SPRINGBORO OHIO 45066
937-748-4504
How many times have you heard someone say, “don’t put all your eggs in one basket?” When it comes to investing, that old saying is very good advice. Successful investors know that diversifying their investments can help reduce the impact of a single poorly performing investment.
Diversification means more than having different kinds of investments, such as stocks, bonds and mutual funds. It means having a mix of investments in different sectors and industries. A well-diversified portfolio might include bonds, money market funds, stocks, and real estate. Investors in securities should consider small, medium, and large companies in a variety of industries and countries. Mutual funds which offer different levels of risk are another consideration. Even if your risk tolerance is low, you can still consider diversifying into riskier investments as long as you keep the overall risk of your portfolio low.
The right diversification strategy for you depends on how much wealth you have, your age range, your risk profile and many other factors. Although I can’t recommend specific strategies for diversification, I can offer some simplified guidelines:
Guidelines for Your Diversification
Diversify across the following categories: real estate, stocks, savings or money market accounts, bonds, other investments.
Diversify within each category above.
If you invest in stocks, try not to let any one stock account for more than 5-10% of your portfolio.
Use mutual funds to diversify stock risk. Buy different mutual funds from different fund companies.
Keep 3-6 months of income in liquid assets including cash, savings or money market accounts. As you approach retirement, increase this amount dramatically.
Although bonds are often a staple to a well-diversified portfolio, I wouldn’t recommend investing in them unless your portfolio is large (over $200k) or unless you are close to retirement (within 5-15 years). To invest in bonds despite these circumstances, you can buy mutual funds that specialize in bonds, also known as bond funds.
If all of your wealth is in the value of your home (real estate) and you can afford a higher mortgage payment, you may want to diversify by taking a home equity loan (when interest rates are low) and investing it in another asset class. Only do this if you are comfortable taking on added financial responsibility, but doing so can sometimes increase your diversification and add to your long-term returns.
Review your portfolio regularly to insure it is achieving the desired results and reflects any changes in your circumstances.
Determining Your Investment Mix
An important first step in building a well-diversified investment portfolio is deciding how to divide your money among various investments. These types of investments can include individual stocks and bonds, mutual funds that invest in stocks or bonds, bank accounts and money market mutual funds.
Financial professionals such as stockbrokers, financial planners and insurance agents can help you analyze your financial needs and objectives. In addition, mutual fund organizations may use their own sales forces or outside professionals to help potential investors. If you prefer to do it yourself, researching stocks and mutual funds and buying shares can be accomplished through the mail, over the telephone, or on the Internet. It’s not as complicated as you might think.
To help you determine the mix of investment options that may be appropriate for your investment goals, ask yourself the following questions:
• What are my investment goals?
• What is my time frame to reach these goals?
• Can I afford to invest regularly?
• What growth rate do I need to reach my goals?
• What is my risk tolerance to reach my investment goals?
Diversification is essential for successful investors who have multiple goals with different time horizons. For example, if you were saving for both a car and retirement, you would likely consider different types of investments for each goal. Similarly, a 30-year-old unmarried investor is likely to need a different investment mix than a 50-year-old with two children heading off to college in the next few years. If you are retired, protecting your principal becomes increasingly important as opposed to growing the investment.
Maintaining a Diversified Portfolio
It’s a good idea to periodically review your investment plan. Because different investments grow at different rates, your current distribution of money among stock, bonds, and money market funds may no longer correspond with your original distribution. If this happens with your investments, you will probably need to redistribute some money to bring your investment mix back in line with your original plan.
In addition to the annual review, whenever you make a major life change, it’s time to reassess your overall financial situation. Some common examples of such changes include switching careers, retiring, getting married or divorced, having a child, starting your own business, taking care of an elderly parent, and entering college or paying tuition for a child. Most of these events are likely to affect your ability to invest, your time horizon, and your overall financial picture, both short-term and long-term.
It’s never easy to find the time to review your investment plan when you’re in the midst of any of these life changes. But it’s worth making the effort. You don’t want to enter a new phase of your life with a financial plan that was designed for different circumstances.
In the end, staying on course with a diversified investment mix will help make sure that the performance and risk levels of your overall portfolio reflect your goals and expectations.
4 DUNNINGTON COURT
SPRINGBORO OHIO 45066
937-748-4504
How many times have you heard someone say, “don’t put all your eggs in one basket?” When it comes to investing, that old saying is very good advice. Successful investors know that diversifying their investments can help reduce the impact of a single poorly performing investment.
Diversification means more than having different kinds of investments, such as stocks, bonds and mutual funds. It means having a mix of investments in different sectors and industries. A well-diversified portfolio might include bonds, money market funds, stocks, and real estate. Investors in securities should consider small, medium, and large companies in a variety of industries and countries. Mutual funds which offer different levels of risk are another consideration. Even if your risk tolerance is low, you can still consider diversifying into riskier investments as long as you keep the overall risk of your portfolio low.
The right diversification strategy for you depends on how much wealth you have, your age range, your risk profile and many other factors. Although I can’t recommend specific strategies for diversification, I can offer some simplified guidelines:
Guidelines for Your Diversification
Diversify across the following categories: real estate, stocks, savings or money market accounts, bonds, other investments.
Diversify within each category above.
If you invest in stocks, try not to let any one stock account for more than 5-10% of your portfolio.
Use mutual funds to diversify stock risk. Buy different mutual funds from different fund companies.
Keep 3-6 months of income in liquid assets including cash, savings or money market accounts. As you approach retirement, increase this amount dramatically.
Although bonds are often a staple to a well-diversified portfolio, I wouldn’t recommend investing in them unless your portfolio is large (over $200k) or unless you are close to retirement (within 5-15 years). To invest in bonds despite these circumstances, you can buy mutual funds that specialize in bonds, also known as bond funds.
If all of your wealth is in the value of your home (real estate) and you can afford a higher mortgage payment, you may want to diversify by taking a home equity loan (when interest rates are low) and investing it in another asset class. Only do this if you are comfortable taking on added financial responsibility, but doing so can sometimes increase your diversification and add to your long-term returns.
Review your portfolio regularly to insure it is achieving the desired results and reflects any changes in your circumstances.
Determining Your Investment Mix
An important first step in building a well-diversified investment portfolio is deciding how to divide your money among various investments. These types of investments can include individual stocks and bonds, mutual funds that invest in stocks or bonds, bank accounts and money market mutual funds.
Financial professionals such as stockbrokers, financial planners and insurance agents can help you analyze your financial needs and objectives. In addition, mutual fund organizations may use their own sales forces or outside professionals to help potential investors. If you prefer to do it yourself, researching stocks and mutual funds and buying shares can be accomplished through the mail, over the telephone, or on the Internet. It’s not as complicated as you might think.
To help you determine the mix of investment options that may be appropriate for your investment goals, ask yourself the following questions:
• What are my investment goals?
• What is my time frame to reach these goals?
• Can I afford to invest regularly?
• What growth rate do I need to reach my goals?
• What is my risk tolerance to reach my investment goals?
Diversification is essential for successful investors who have multiple goals with different time horizons. For example, if you were saving for both a car and retirement, you would likely consider different types of investments for each goal. Similarly, a 30-year-old unmarried investor is likely to need a different investment mix than a 50-year-old with two children heading off to college in the next few years. If you are retired, protecting your principal becomes increasingly important as opposed to growing the investment.
Maintaining a Diversified Portfolio
It’s a good idea to periodically review your investment plan. Because different investments grow at different rates, your current distribution of money among stock, bonds, and money market funds may no longer correspond with your original distribution. If this happens with your investments, you will probably need to redistribute some money to bring your investment mix back in line with your original plan.
In addition to the annual review, whenever you make a major life change, it’s time to reassess your overall financial situation. Some common examples of such changes include switching careers, retiring, getting married or divorced, having a child, starting your own business, taking care of an elderly parent, and entering college or paying tuition for a child. Most of these events are likely to affect your ability to invest, your time horizon, and your overall financial picture, both short-term and long-term.
It’s never easy to find the time to review your investment plan when you’re in the midst of any of these life changes. But it’s worth making the effort. You don’t want to enter a new phase of your life with a financial plan that was designed for different circumstances.
In the end, staying on course with a diversified investment mix will help make sure that the performance and risk levels of your overall portfolio reflect your goals and expectations.
posted by crg1 at 2:40 AM
0 Comments:
Post a Comment
<< Home