Diversification is a management strategy that involves combining several investments into one single portfolio. If you can get the right blend of your options, you will have succeeded in building the perfect portfolio.
As an investor, it is one thing to own an investment or better still, several investments, it is another thing to have a perfect portfolio. Regardless of how great certain options might sound, too much of a particular thing isn’t healthy and it exposes you to significant risk should things go pear-shaped. To assist you in building a robust and balanced portfolio, here are five investment options to consider:
Commercial Real Estate
Commercial property investment can provide you with a higher return on investment compared with residential property. It also delivers welcome relief from tax worries, and mortgage payments, while also being a good retirement strategy. Your tenants bear the brunt of the taxes, insurance, and maintenance, and you still get your rent, making it very lucrative.
Understandably, when you are starting as an investor in real estate property, it’s advisable to focus on single-family homes. However, when it’s time to diversify and grow your portfolio, it’s worth considering a switch to multi-family properties. This will significantly help reduce certain risks such vacancy periods. Multi-family homes are more attractive for tenants and are easier to manage. Additionally, the chances that you will have any issues from rental income will almost be minimal. Your income will almost certainly surpass your expenses such as insurance, taxes, mortgage, etc.
When you opt to play the stock market, diversification means you should be looking to invest in more than just a few stocks. Mutual funds have become quite popular due to their model of pooling capital from several sources, as well as buying a wide range of securities. What makes this option so robust is that even if one company within the fund doesn’t perform to expectations, the impact would very likely not be felt and you still get optimal returns from your investment. In most cases, there is a unique combination of the various investments within a particular fund, with a combined appropriate risk level upon assessment. This balance is what gives mutual funds their tenacity.
Real Estate Investment Trusts
Investing in REITs will help you keep with your goal of diversification. These are companies that are the major owners and financiers of income-producing real estate properties. It is also a relatively stress-free investment option which only requires your capital. You do not have to worry about managing any rental property or taking care of any rental expenses. You get to become a passive income earner via dividend-payments.
This is easily one of the riskiest, yet most profitable forms of investment that you should consider as you aim to diversify your portfolio. Buying and selling shares is a growth investment that could either be done in the short or long-term, depending on your goals and interests. You also get to earn money from the share dividends. Understanding the stock market helps to increase your propensity to make significant profits from this means of investment. A perfect portfolio involves a strategic balance of stocks, combined with other relatively safer options. This will increase your chances of growing your income significantly while also reducing your exposure to risk.
Diversification is crucial to helping you gain the benefits from various investments while also helping to reduce your risk potential for loss.