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Investment diversification is a hard topic to grasp if you’ve mostly relied on autopilot investment strategies like a company 401K. A recent story in Bloomberg highlights why more people are taking an active interest in their future finances: employers are rapidly slashing benefits. From 2001 to 2015, there’s evidence that workers lost a collective quarter of the value of previous generations in benefits. Simply put, retirement is expensive and companies are scaling back to cut costs.
That puts the lion’s share of work on you to figure out where and how to invest. If you’re a beginner, and you’re wondering what a healthy diversified portfolio looks like, here are some examples and thoughts to stimulate your mind.
Generating Income
Investment portfolios that generate income typically take on some risk in the process of doing so. The basic design for this kind of portfolio is to invest in multiple streams of income. You need guaranteed earners, like different forms of savings (CDs and mutual funds), but you’ll find higher risk ventures like ETFs. How does this translate to real world investing?
Using a firm like Genesis Mining, you may soon be able to combine crypto-currency investment with stock trading if the Winklevoss ETF gets approval from the Securities and Exchange Commission. An ETF makes more complicated investments, like investing in Bitcoin or tech startups, much more accessible for the average person.
You’ll also want a certain percentage invested in stocks, usually larger brands that are well established and paying dividends. Dividends are like accruing interest on a savings account, and they allow you to reinvest the money you make on the stocks you own.
Aggressive Investing
Playing aggressively means shouldering a great deal of risk, and investing internationally too. It’s not something recommended for the average investor without a personal finance person to assist, but it can be very profitable. The key to this strategy is to have the capital necessary to shoulder some of the risk that comes with market fluctuations.
If you’re young, and you’ve got money in the bank, this is a great place to start because you can better afford the losses that come with this strategy. That said, you’ll want to transition to a safer plan the closer you get to your retirement.
Reverse Mortgages
Retirement is supposed to be a time to relax and enjoy the rewards of your years of hard work. However, enjoying your retirement requires a significant amount of money. If you do not have that money, one way to obtain it is with a reverse mortgage. It will allow you to borrow money for an indefinite time period, as long as you continue to use the home as your main residence. When you talk to a reverse mortgage lender, extended loan terms will be setup allowing you to receive money monthly to cover bills or any expenses you wish, including vacations or medical bills. You will also retain full ownership of and responsibility for maintaining your home until you choose to leave it. Then you or your family must allow the sale of the home or pay the loan balance.
Safe Investing
Playing investing safely involves making low risk investments with a very low return potential. Precious metals are one place where many older people hold money because those don’t tend to fluctuate a lot in value.
Safe investing also has the added benefit of being very simple. If you’re feeling overwhelmed, and don’t have a lot of money to start investing, playing safely can be a great way to snowball your earnings for reinvestment later in life. It’s also a good end of life investment strategy to allow for some additional income, or to hold assets for future generations.
Final Thoughts and Tips
Keep in mind a few basic rules, and get yourself some good reading materials, and you’ll find some success if you invest well. Generally speaking, stocks are going to excel when the economic climate is strong (good job creation, lots of profits and growth). When things slow down, bonds are a great way to recoup value in a conservative market.
The Web has a wealth of resources, just make sure you’re taking advice from a reputable name or source.
See my disclaimer.