Diversified Investment Strategies – tips from the professionals
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What Are Diversified Investment Strategies?
Diversified investment strategies are a popular option for a range of financial planners, fund managers, and independent investors. Diversified investment refers to a wealth accumulation strategy which combines multiple investments into one single portfolio.
The core principle underlying diversification is that investing in a wider range of investments will bring in a larger return. The strategy also means investors will be at less of a risk by investing in multiple separate vehicles.
- Disciplined investing might take some investment in time, but it will be worth it when your portfolio stands strong in the face of financial adversity.
- Diversifying through expanding your equities can be a useful strategy.
- Your portfolio should not be ‘set and forget’; taking time to review your plan is an essential part of managing your investments.
- At Collins Mann, we used to say, ‘cash is king’, now it’s ‘education is king’; understanding your investments and knowing when they no longer serve your purposes can make or break.
Learn to Practice Disciplined Investing
The concept of diversified investment strategies has been around for a while now. It is nothing new and has been a viable investment option for as long as we can remember.
Because hindsight is 20/20, we can now look back and identify the market trends when they first started to fluctuate following the dotcom crash and before the GFC.
Having knowledge like this will put you in a stronger position to make smarter investment decisions when it comes to choosing your vehicles. Afterall, investing is an art form, not a split-second decision or spur-of-the-moment fad.
Spending the hours practising disciplined investing is key when it comes to working with a diversified portfolio. Diversification is most effective when it is well-planned and thought out.
If the strategy is enacted as a reaction to market fluctuations, around about 80% of irreparable damage has already been dealt.
As they say though, a good offense is the best defense, just as a strategically diversified portfolio in a company with an investment horizon over five years will be enough to keep you on the ‘up’ should a storm come your way.
Tips for Diversification
Expand Your Equities
Equities have the potential to be amazing but be careful not to place the totality of your money in a single stock or sector.
Maybe you would like to think about creating a personal virtual mutual fund by investing in a small number of companies you’re familiar with, you can trust, and perhaps whose services you utilise in your everyday life.
In saying that, stocks should not be the only thing you think about. You might like to additionally or alternatively invest in commodities, exchange-traded funds (ETFs), and/or real estate investment trusts (REITs).
If you do this, be sure to expand beyond your local world. If you go global with your investments, you will be diversifying the risk which can ultimately result in bigger yields. Some might push back and say that investing personally in companies you are familiar with
can result in the investor putting too much into retail-oriented companies. If this is you, remember that being familiar with a company, or utilising its products in your everyday life is a healthier and more wholesome mindset to have when in this sector.
Stocks should not be the only thing you think about when considering investing for your future
Regularly Service Your Portfolio
It is important to regularly edit and update your portfolio. If you find you have $10,000 that you are able to invest, you might utilise dollar-cost averaging.
This strategy is pointed towards helping to minimise the fund fluctuations which result from market volatility.
The core concept underlying this strategy is to reduce investment risk by investing a similar, if not identical, amount of funds over a certain amount of time.
Be Up-to-Date and Know When to Leave
Buying and holding, and dollar-cost averaging are both suitable and viable strategies to use when considering diversified investment strategies.
However, simply because your investments are looked after automatically does not mean you should not watch out for signs that it might be time to get out of an investment.
Be sure to check in and keep up to date with all your investments. Make sure you are aware of significant fluctuations in general market conditions.
You will be a smarter and stronger investor if you put the effort in to be familiar with the companies that you’re investing in.
An added perk is that you will have a much better idea of when it’s appropriate to get out and progress forward to your next investment.
What it Comes Down to
The art of investing should be an enjoyable experience. It holds the potential to teach you, inform you, and reward you in ways that cannot be experienced elsewhere.
By investing with a disciplined strategy and utilising diversified investment strategies, investing can be an enjoyable and rewarding activity even during times of market volatility and/or uncertainty.
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Diversification is most effective when it’s well-planned and thought out.