When starting as an investor in the stock market, there is one thing you should always be cautious of – market volatility. Subsequently, since the market is always shifting and changing, it can be beneficial to learn the importance of diversifying your portfolio.
Morningstar’s lead alternative investment analyst, Nadia Papagiannis says, “I think investors are becoming more and more aware of alternative funds because of the volatile markets and I think they have more of a place in the average portfolio now because of the market uncertainty.”
In simple terms, diversification is a management strategy for fund managers, individual investors, and financial planners. They spread the risk across various types of investments to favor the odds of their investment success. If you are unsure of who will win, you might as well bet on everything- so at least your efforts will not be in vain.
Diversifying a portfolio is viewed differently by investors who are still young and those who are nearing retirement age. Young investors are more comfortable and willing to take risky actions to ride the highs and lows of their investment portfolio. On the other hand, investors who are nearing retirement age show more interest in slow investment growth, resulting in a consistent performance that is not significantly affected by the stock market’s volatility.
Every investor aims to create optimal strategies to grow their wealth and work towards a financial independence status- hence why a majority of investors, both young and older, use diversification as a part of a long-term strategy for their investments.
Now having individual assets does not mean that you do not suffer any losses. However, Kent Insley, a chief investment officer states, “It’s very rare that any two or three assets with very different sources of risk and return, like government bonds, gold and equities, would experience declines of this magnitude at the same time.” That means that even if your stocks drop more than 20 percent, your gold and bond would keep your portfolio from falling apart.
Diversifying Your Portfolio
Most investors believe that the higher the number of investments in a portfolio allows investors to triumph against the volatile stock market. However, the reality is quite different. Having many investments doesn’t mean you will win every time.
When diversifying your investments, it is crucial that each of them play an important role in fortifying the portfolio from the core. For example, some funds can be used for exposure to the United States large capital stocks, while the rest can focus on smaller capital stocks.
If you are starting out your investment journey and wish to make the most out of portfolio diversification, seeking guidance from wealth managers such as Ty J. Young Wealth Management can be the best course of action.
As a businessman and a wealth manager, Ty J. Young founded a registered advisory firm called ‘Young Investment Advisors.” Through this firm, he provides clients with trading and advisory services that benefit their bonds, stocks, and portfolio management.
With over twenty years of experience in the field, Ty J. Young has been devoted to aiding both younger and older investors in managing and protecting their portfolios from stock market loss- making him a leading figure among financial advisors since the 2000s.