Investing your money safely involves the old saying of not putting all your eggs in the same basket. Since single stocks can suddenly lose their value, you are at the highest risk when gambling on just one. When you diversify your assets and portfolio, which means to place your investment money in different types of investments and different sectors, it provides much better protection for your money.
When you diversify your assets, you are much more protected because when one sector fails, money in other sectors should still gain a profit. This helps to minimize any losses, but it is not a guarantee. There is a difference between how long-term and short-term investing should be conducted.
Diversification options can include mutual funds, stocks – domestic and international, bonds, money market funds and CDs, real estate funds, ETFs, and U.S. Treasury securities. Here are several ways to ensure that you diversify your assets and money.
Asset Allocation Funds
The method of asset allocation funds lets the investment company choose a package of investments. The simplest solution is one where you buy the package from an investment company. It has preselected funds to provide you with a basic diversified balance of stocks and bonds. A common balance is to put your money into a split of 60/40. 60% is invested in stocks and the other 40% in bonds.
You may also want to put some of your money into various cash investments. This type of investment is the safest possible but it is also the lowest yielding one. It consists of savings accounts, certificates of deposit (CDs), money market funds, and treasury bills. Having some of your money in the form of cash investments will help provide stability.
Index funds are similar to mutual funds or exchange-traded funds. They seek to match the performance of a financial market index such as the S&P 500. A single share of this type of fund is invested in many different companies – hundreds of them – to ensure a high level of stability. Although this form of investment is lower risk, it also will not generate a high level of profit but it does offer lower fees.
If you want to have a greater choice in the types of investments you possess, you can put your money into both mutual funds and in ETFs. First, find out what kind of companies are in the fund (look at the top 10-15 holdings) to be sure of diverse asset classes. You also want to ensure that some global companies are in it.
You can also tweak your investment by balancing it out with selective stocks. This will require a little research, but you want to be sure that if one sector is taking a hit, another kind will move in the opposite direction. You should also select some stock from international companies. The U.S. may suffer loss, but another country may not suffer losses at the same time.
Beginner investors can get advice from investment companies. They can help you to understand your risk level and choose the type of investments that are best for your financial goals. Be sure to understand all fees before working with or investing in an investment company because they are all different. You will obtain the highest gain when your fees are the lowest.