The last few months have been tough for investors. The stock market is volatile, and interest rates are increasing, making it challenging to grow your portfolio. But don’t worry: plenty of options can help diversify your portfolio and boost returns without the risk of going all-in on one investment.
The smartest, wealthiest investors have diversified portfolios.
A diversified portfolio is one where you spread your money across multiple asset classes.
The most common way to do this is by investing in stocks and bonds, called “traditional” assets. But other options like real estate, gold, cryptocurrency, and private equity can increase your portfolio’s diversity and make it more resilient to market downturns.
If you have only stocks in your portfolio, then when there’s a stock market crash like we saw in 2008–2009, those investments will take a hit. However, if you had assets outside of the market (and real estate), those investments may have been more resilient against the downturn.
Real estate is another great asset class to add to your portfolio. In addition to being a relatively low-correlated asset, investors can leverage real estate in various ways depending on their goals.
Suppose you want stability against the stock market. In that case, it makes sense to purchase an income-generating property (such as commercial real estate) and tap into the cash flow from that property.
Precious Metals (Gold and Silver)
Precious metals, such as gold and silver, are a safe haven asset that investors can use to hedge against increases in inflation. Inflation is the rate at which prices for goods and services rise. Gold is also an asset with a store of value or can act as a hedge against currency devaluation because its price tends to remain steady regardless of the economy or political climate.
Cryptocurrencies are digital currencies that use the blockchain to secure transactions, control the creation of additional units, and verify the transfer of assets. There is no centralized authority that issues or controls cryptocurrencies, which means that nobody can predict how the market will respond to the recent rise in bitcoin prices.
While it’s difficult to know if you’ll make a profit from investing in a cryptocurrency, there are some things you can do to increase your odds:
- Understand how blockchain technology works so you can understand how each currency functions differently from others.
- Study current trends and compare them with historical data before deciding which cryptocurrencies to invest in.
Private equity is a good asset class for investors who want to diversify their portfolios. Investors can take advantage of small companies poised for growth or companies with high cash flow but are too small to go public. With private equity, you potentially get:
- The opportunity to invest in companies at their initial growth phases.
- The opportunity to invest in highly profitable companies that are not public.
- Investing in a fund will spread your exposure over multiple opportunities.
Diversification inside of your portfolio is important and different for every investor. Whether you are looking for steady income, high growth, consistency, or some combination of the three, diversification inside of your portfolio will allow you to meet your goals while protecting against external forces.