Your main keys to diversification
Diversification based on your age is often cited as critical, but it is extremely fraught with misconceptions. Diversification is absolutely critical to a good investment plan, but it should be based on a number of factors, not just your age.
Age-based diversification is just another way of saying, “I think I’m going to live a long time” or “I don’t have much time left.” Or it’s like a hitter who takes on Nolan Ryan or Greg Maddux with a “good” attitude or a “I can hit this guy” attitude.
Some of the keys to diversification are:
• Finished: Are your investments long-term, short-term, medium-term, or a combination?
But don’t confuse these “terms” with how much time you will spend; rather, they are terms that describe how long you typically expect to hold a position (stocks, ETFs, or funds). If you are going to trade daily, it is not very likely that there will be long-term positions. On the other hand, if you only want to trade occasionally or monthly, most of your positions will generally be medium to long term.
o How you determine the length of your average holdings will be decided for how long and how often you can manage your investment portfolio, AND what your goals are, your objectives.
• Kind: Where are you going to put your investment dollars? In other words, do you favor stocks or ETFs or mutual funds or maybe a little of everything?
o Stocks may offer the greatest opportunity to make a profit, since you are investing in a particular company. Investing in stocks also allows you to buy and sell almost any day at any time. However, stocks tend to be more susceptible to the ups and downs of markets and world events.
o Investment Funds offer diversification by their very nature. Each fund is made up of many individual stocks of the same type or goal, utilities or large corporations, for example. Because a fund contains shares of many companies, it is not as dependent on any one company to be successful in producing profits or increasing in value. While funds are less likely to suffer major losses, they are equally less likely to make skyrocketing gains.
o ETFs are a kind of cross between mutual funds and individual stocks. Like funds, each ETF (Exchange Traded Fund) contains investments in many similar companies, but unlike a fund, there is no active management that involves changing shares. ETFs have become extremely popular in recent years because they don’t have the fees or fund retention requirements and can be traded at any time like stocks.
• Safety: Balancing risk is a key component to diversifying your investments. You can do this by creating different groups that you are willing to invest your money in, for example:
o Payment of high dividends
or US companies.
o Foreign companies
o Bonds
o Funds type ‘Select’
o Industrial sectors
o Strength of assets
By investing in six to eight different groups or types of investments, it is easy to achieve diversification and still have your portfolio easily manageable. The pools can be all ETFs, for example, or a combination of stocks, ETFs, and mutual fund pools. If you are using a combination of all three types of investments, it is important that each one is unique; In other words, you don’t have a utility ETF or a utility fund.
With proper diversification, you can stay safe because it is rare for all types of investments to decline at the same time and also have the opportunity to make substantial profits.