What Does A Diverse Portfolio Look Like?
There’s one golden rule of investing that trumps all others: diversify. In other words, never put all your eggs in one basket. Imagine if you put all your money into one single stock (let’s say it’s Twitter). Now, if Twitter’s share price hemorrhages (like it’s doing right now), you’ll lose all your money. Even if you spread your investments in lots of tech stocks, you still risk losing money if the tech market crashes. The key is investing in diverse industries and taking out different types of investments.
We’re often asked what a balanced, diverse portfolio should look like. So, today, we’re going to show you.
Five or six blue chip stocks
‘Blue chip’ shares are the solid, reliable, mammoths of the stock market. Think Disney, Visa, General Electric, Wal-Mart etc. You know for a fact that these shares will keep on trucking, even when things get tough. They’ll ride out stock market wobbles, and they always rebound. Better yet, they pay out big, fat dividend checks on a regular basis. These stocks should form a good quarter to a half of your portfolio. They’re your anchor. Just be sure to pick stocks from different industries (ie. choose a bank, a retailer, a tech company).
One or two small caps
Small cap stocks are companies with a much smaller market capitalization. (Usually less than $1 billion. Tiny, right?) The best thing about these smaller companies is their ability to adapt and move with the times. That makes them surprisingly reliable, and quick to make a profit. They move faster and fluctuate more than the blue chips, but they will potentially make more money. Find one or two small companies you believe has a bright future and strong business model.
Gold or silver
We always advise investors to keep a steady handful of gold or silver investments. Why? Because precious metals are invincible during recessions and market wobbles. Take this year, for example. 2016 opened with the worst stock market decline in 100 years. Yet, gold prices have soared. The reason is that gold provides a safe haven in unstable times. Balance out your stocks with a reliable gold reserve. Most investors have about 10% of their equity in gold.
When you invest in bonds, you are essentially lending the government money. It’s yet another form of investing, but it’s not tied to stock market movements. Government bonds are generally quite reliable. After all, the government is always good for the money! You’ll get a regular dividend, and the return is based on national interest rates. Although interest rates are currently very low, it’s still a safe place to invest.
Finally, keep a good portion of your equity away from the stock markets completely. Invest in real estate and property, and your rewards will increase year on year. Although there are market dips, the overall pattern moves upwards, making you a healthy return.
That’s a basic, diverse portfolio for you, folks. Would you include anything else in your balanced investment folder?
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