Diversification is key!
You hear that diversification is key to investing. Investment advisors want you to avoid individual stocks because picking them is too hard, so they will recommend a group of mutual funds for you to invest.
The problem I have with this is during a down market like we are seeing in 2008 and 2009, is that virtually every stock has plummeted. It did not matter if you were invested in small-cap stocks, large-cap stocks, international stocks, or a sector like energy stocks - everything has fallen.
If the recent bear market has taught us anything, it is certainly that diversification is very important. Many people, including older investors, were in the stock market way too heavily and are now experiencing deep loses in their portfolio.
It does not have to be that way. There are many alternative ways to make your money work for you in an economy such as this.
One option is something called private REITs. A REIT stands for Real Estate Investment Trust. A REIT can be publicly traded or private. A public REIT could experience much of the same affects of the stock market. However, a private REIT usually guarantees a certain rate of return over a period of time. The downside is that your money is tied up in the REIT and there is usually a penalty for early withdrawal. At some point the private REIT sells its share publicly (usually when market conditions are favorable) and it is concluded at that point.
You hear a lot of commercials about gold, and right now, they are accurate. Gold tends to be a safe haven for money when stocks or bonds get volatile. Many people think they have to go to the local coin shop down the street and buy gold coins or gold bullion to participate, however that is not the case. Investors could invest in gold through an exchange traded fund (ETF). An exchange-traded fund (or ETF) is an investment vehicle traded on stock exchanges, much like stocks. An ETF holds assets such as gold and trades at approximately the same price as the net asset value of its underlying assets over the course of the trading day. One common one is called GLD.
Also, land or houses can be a good way to diversify. This is definitely not for everyone, but sometimes rental income is a good diversification tool. However, it also poses risks, because you could have bad tenants and of course you may have cases where your property goes un-rented for an undermined period of time. But again, the key to your strategy should be diversification, so this would only be part of your portfolio. I have a personal example to share here. I recently took advantage of the mortgage rate drops, and I refinanced my current home at 4.5%. After seeing my other investments take such a hit this year, I have decided to focus on paying off my house in 15 years. If I move, I plan to rent the house and continue with my plan to pay it off. In the end, I hope to have an asset with value and also a vehicle for returning monthly cash flow in the form of rent.
In conclusion, I want to encourage people to think creatively and learn to really diversify their investment portfolio. If you need help, seek the help of investment advisor or money manager. However, be cautious if he or she wants to only sell you a family of mutual funds. Ask questions about other opportunities they have as well, such as private REITs, annuities, etc. It is okay to invest in mutual funds, I own several myself, but in a market like we have now, it is easy to see now important non-stock diversification really is.
You hear that diversification is key to investing. Investment advisors want you to avoid individual stocks because picking them is too hard, so they will recommend a group of mutual funds for you to invest.
The problem I have with this is during a down market like we are seeing in 2008 and 2009, is that virtually every stock has plummeted. It did not matter if you were invested in small-cap stocks, large-cap stocks, international stocks, or a sector like energy stocks - everything has fallen.
If the recent bear market has taught us anything, it is certainly that diversification is very important. Many people, including older investors, were in the stock market way too heavily and are now experiencing deep loses in their portfolio.
It does not have to be that way. There are many alternative ways to make your money work for you in an economy such as this.
One option is something called private REITs. A REIT stands for Real Estate Investment Trust. A REIT can be publicly traded or private. A public REIT could experience much of the same affects of the stock market. However, a private REIT usually guarantees a certain rate of return over a period of time. The downside is that your money is tied up in the REIT and there is usually a penalty for early withdrawal. At some point the private REIT sells its share publicly (usually when market conditions are favorable) and it is concluded at that point.
You hear a lot of commercials about gold, and right now, they are accurate. Gold tends to be a safe haven for money when stocks or bonds get volatile. Many people think they have to go to the local coin shop down the street and buy gold coins or gold bullion to participate, however that is not the case. Investors could invest in gold through an exchange traded fund (ETF). An exchange-traded fund (or ETF) is an investment vehicle traded on stock exchanges, much like stocks. An ETF holds assets such as gold and trades at approximately the same price as the net asset value of its underlying assets over the course of the trading day. One common one is called GLD.
Also, land or houses can be a good way to diversify. This is definitely not for everyone, but sometimes rental income is a good diversification tool. However, it also poses risks, because you could have bad tenants and of course you may have cases where your property goes un-rented for an undermined period of time. But again, the key to your strategy should be diversification, so this would only be part of your portfolio. I have a personal example to share here. I recently took advantage of the mortgage rate drops, and I refinanced my current home at 4.5%. After seeing my other investments take such a hit this year, I have decided to focus on paying off my house in 15 years. If I move, I plan to rent the house and continue with my plan to pay it off. In the end, I hope to have an asset with value and also a vehicle for returning monthly cash flow in the form of rent.
In conclusion, I want to encourage people to think creatively and learn to really diversify their investment portfolio. If you need help, seek the help of investment advisor or money manager. However, be cautious if he or she wants to only sell you a family of mutual funds. Ask questions about other opportunities they have as well, such as private REITs, annuities, etc. It is okay to invest in mutual funds, I own several myself, but in a market like we have now, it is easy to see now important non-stock diversification really is.