5 Tips for diversifying your portfolio
Build a strong portfolio and protect against risk.
The staple concept behind Modern Portfolio Theory is that diversifying is key to a successful portfolio. It is probably common knowledge that a well balanced, diverse portfolio outperforms a concentrated one.
What diversification is, exactly, is purchasing stocks and other investments in more than one asset class or sector in order to combat systematic risk and volatility. By investing in non-correlating assets, you can protect yourself from volatility.
Investment classes that are considered non-correlated are investments such as bonds, commodities, currencies, real estate, fine art, and cars.
Non-correlated assets fight volatile markets since every asset class reacts differently to changes in the markets. Investors find that there are times when a market is not performing well, and another may be thriving. Investors who keep this in mind receive a balanced return and skip the highs and lows of a poorly performing market.
When a portfolio only has a single asset class, it is susceptible to various kinds of investment risks. For this reason, any investment advisor will tell you to diversify your portfolio. While this article cannot take the place of proper guidance, it is here to point you in the right direction and give you concepts to consider. When you are ready to diversify, or if you require investment guidance, contact Goldbach Capital.
1. Plan Early
Having a strong portfolio will only become a reality if there is proper planning. One way to ensure your financial planning is carried out properly and that you are diversifying thoroughly is to begin your diversification early. Taking inventory of your current investments will allow you to catch the types of risk you are susceptible to. Knowing which risks you are open to enable you to make the right kinds of investments that will protect your portfolio.
2. Alternative Investments
One way investors have found to diversify is through alternative investments. An alternative investment is one that does not fall within the realm of traditional assets. They are typically difficult to handle due to low liquidity and usually high minimum investments and fee structures compared to conventional investment types.
The initial investment can be higher than classic investment classes, but transaction fees remain low since there is little turnover. Additionally, investors often hold onto these kinds of investments longer than other types of investments, which can result in tax benefits.
Alternative investments are often appealing to some investors because they allow you to invest in something appealing or even entertaining. For some, classic cars and fine art are their choices of investment. Not only can it grow in value over time, but it is also a hobby in a way.
Examples of alternative investments include foreign currencies, commodities, and offshore real estate.
3. Go Offshore
Tapping into offshore markets allows investors to take advantage of asset classes that may not be available everywhere, such as specific digital currency markets, or markets that perform better in certain jurisdictions. For example, some real estate markets are thriving, while others are still struggling to take off. Having real estate investments in more than one country could be a great way to diversify.
Placing wealth offshore can open up further advantages such as favorable offshore banking laws, asset protection, and lower taxation.
Investing offshore may take the form of foreign real estate, international trusts, and opening an offshore bank account that offers world-class investment services.
4. Check Your Portfolio Regularly
Creating a financial plan is a great first step! Understanding your goals and knowing steps to achieve them is empowering, and it can feel good to know that your investments may be growing your wealth.
When you place high-performing investments in your portfolio that hedge against your risks, you can shut the door and expect results, right? Unfortunately, that is wrong. Wealth management and diversification plans are like a car. Every year, individuals need to get under the hood and make sure their vehicle is running properly and make any adjustments required. The same should be said about a wealth management plan.
Are the investment strategies getting the expected results? Are tax-favored investments really lowering tax responsibility? Are you still on track to retire the way you planned? All of these questions and more will be answered with an annual financial review. Keeping track of progress with this checkup will ensure goals are met.
Keeping up-to-date with your current risk profile will determine whether or not there are changes that need to be made in your portfolio. The idea of regularly checking your portfolio may seem like a lot of work, and it can be. This point leads to our next tip for portfolio success. Seeking the help of professionals that dedicate their lives to the success of investment portfolios.
5. Diversify With Guidance
Knowing the solutions to your individual risks and when to invest in certain markets to combat those risks is nearly impossible, even for the most experienced investors. For this reason, the best way to diversify a portfolio successfully is by seeking the guidance of a team of skilled professionals.
It can be nearly impossible to single-handedly choose the right investments, keep an eye on them, and then correctly remedy the situation when an asset is not performing as expected.
Goldbach Capital offers family office services to clients and families with assets under our management in excess of CHF 10 MM.
Our team has the knowledge and resources to become a trusted partner of wealthy families. We offer a comprehensive range of services, by combining proprietary expertise with an external pool of first-class advisors. Our portfolio management services range from simple advising to hands-on decision making, depending on your level of comfort and your goals. While incorporating our approach in life simplification, cost-cutting, and asset protection, growth, and monitoring, our family office services integrate your family’s vision and core values to create the right financial plan for you.