With the uncertainties that typically come with investing, it's important to minimize the chances of suffering significant losses. That's why investment experts stress diversifying investments to compensate for downturns in any one sector. Given the range of potential investments available, choosing the best combination for your investment portfolio should be considered carefully before making any decisions. Here are five ways you can diversify your portfolio.
The Stock Market
Virtually every investment portfolio should include a selection of stocks. However, it's important to understand the fact that most investors won't be able to compete with large (institutional) investors in any meaningful way. That suggests working with some sort of financial consultant who has the capability of advising and expediting buy and sell orders as the market changes. To avoid investing too much money in an individual stock, equity funds (mutual funds and ETFs) offer viable solutions.
Mutual Funds
Funds have been around for years, and some investors feel they are a little too tame for their taste. However, with the ever growing variety of funds available, investors can choose from conservative investments to those that take higher risks. Again, consider a mix of funds to mitigate the potential risks involved. It's always a good idea to work closely with an investment advisor when determining which funds to invest in.
Precious Metals
Many investment experts suggest including gold, silver and other precious metals as a part of a diversified portfolio, as precious metals tend to be more stable than stocks. Many investors believe that including precious metals in their portfolios serves as insurance in the event of a severe economic event, as gold and silver tend to be valued appropriately, in even the worst financial downturns. In addition, metals tend to appreciate steadily over time, offering a generous return on investment when held for an extended period.
Residential Rental Properties
In the past few years, there has been an increasing demand for rental homes and apartments as the nation's demographics have evolved. More people are electing to rent rather than buy homes, especially if their jobs are transitory in nature. The value of rental properties is also rising, suggesting the growth potential is worth investigating. It’s important to research the location prior to investing in a rental property, and also understand that this type of investment requires a larger time commitment to find the right tenants and appropriately manage the property.
Investing in Land
While investing in land can be complicated, there are specific strategies available to improve the odds of generating a profit from a well-researched transaction. Investors can elect to purchase land to hold or rent, but most investors are seeking shorter-term projects that offer a good potential for growth. Investors who don't want to be personally involved in the management of a project can benefit from working with land investment experts.
Every investment opportunity should be carefully considered, and the importance of diversification cannot be overstated. Each portfolio should contain a balance of various asset classes to reduce the odds of experiencing significant losses. While stocks, mutual funds, precious metals, real estate and land investing should all be considered, it’s important to do your research and work with experts in each field to mitigate risk.
This article was written by Dr. Slim Feriani, the Chief Financial Officer and Executive Vice President for Finance and Investments of U.S. listed ROI Land Investments Ltd (OTCQB ticker: ROII).
