Dave Ramsey talks about many stages of smart money management. It starts with building up an emergency fund, paying off debt, and then building up 3-6 months of living expenses as savings, and then investing. Unfortunately we're not at the investing stage yet, but for those that are, here's a guide from a reader about how to do diversified investing.
With the health of the economy in question, more and more consumers are seeking out different alternatives to supplement their income. Some individuals have even looked to the stock market, whereas others have took on part-time jobs. Neither option is a bad one, but with the right investment strategy and know how you can make a bundle of money with half the work. Unfortunately, the only problem is that the stock market is risky and it can take years to develop the perfect strategy. Luckily, this is where diversified investment can come in handy.
What Is Diversified Investing And How Does It Work?
A diversified investment is just basically a portfolio of assets that earn you the highest possible return, while ensuring you are taking the minimal risk. How is this possible with such an up and down economy? Well, there are some fixed assets, stocks, and commodities that react differently during the same economic status. Each one of your assets won’t rely and depend on the other. The theory behind this is if one-asset drops you will have another that rises, which will offset any losses you experienced during the process. This can prevent your entire portfolio from being wiped out with a single bad event.
Considering Variety, Not Quantity
When it comes to your credit score, you cannot remove negative items before 7 years are up. And, this is why it is imperative to be smart and careful when investing. One of the best ways to do this is by investing in a variety of different kinds of investments. If you have a lot of investments, this doesn’t mean that you are properly diversified. In order to diversify you need to have a lot of different kinds of investments.
This might be confusing, but basically all it really means is that you should consider investing in stocks, bonds, real estate funds, securities, and etc. How does this help? Well, stocks help you grow your portfolio, while bonds always bring in positive earnings. Real estate can have the potential to rise when some of your stocks fall, which will offset losses.
Properly Allocating Your Money In Each Investment
Now that you know the types of investments that you are going after, you have to figure out how much you are going to allocate to each of these investments. The first thing you want to do before allocating any money it to set aside enough cash savings to handle any emergencies that you might encounter.
Next, you will be ready to start allocating your resources. Most investors use a simple and basic rule of thumb for allocating. You simply just take your age and subtract it from 100 and put the resulting percentage in stocks and the rest in bonds. For instance, if you are 30 years old, this means that you would put 70 percent of your resources in stocks and stick the other 30 percent in bonds.
Just because you own stocks and bonds doesn’t really mean that you are diversified, so how do you adjust these percentages to diversify? Well, most investors will usually take 10 to 25 percent of their stock resources and put it in securities. You can also shave off five percent off your bond recourses and put it in real estate. Just keep in mind that these are rules of thumb and you really can adjust these percentages by any means that you feel are necessary.
See my disclaimer.
With the health of the economy in question, more and more consumers are seeking out different alternatives to supplement their income. Some individuals have even looked to the stock market, whereas others have took on part-time jobs. Neither option is a bad one, but with the right investment strategy and know how you can make a bundle of money with half the work. Unfortunately, the only problem is that the stock market is risky and it can take years to develop the perfect strategy. Luckily, this is where diversified investment can come in handy.
What Is Diversified Investing And How Does It Work?
A diversified investment is just basically a portfolio of assets that earn you the highest possible return, while ensuring you are taking the minimal risk. How is this possible with such an up and down economy? Well, there are some fixed assets, stocks, and commodities that react differently during the same economic status. Each one of your assets won’t rely and depend on the other. The theory behind this is if one-asset drops you will have another that rises, which will offset any losses you experienced during the process. This can prevent your entire portfolio from being wiped out with a single bad event.
Considering Variety, Not Quantity
When it comes to your credit score, you cannot remove negative items before 7 years are up. And, this is why it is imperative to be smart and careful when investing. One of the best ways to do this is by investing in a variety of different kinds of investments. If you have a lot of investments, this doesn’t mean that you are properly diversified. In order to diversify you need to have a lot of different kinds of investments.
This might be confusing, but basically all it really means is that you should consider investing in stocks, bonds, real estate funds, securities, and etc. How does this help? Well, stocks help you grow your portfolio, while bonds always bring in positive earnings. Real estate can have the potential to rise when some of your stocks fall, which will offset losses.
Properly Allocating Your Money In Each Investment
Now that you know the types of investments that you are going after, you have to figure out how much you are going to allocate to each of these investments. The first thing you want to do before allocating any money it to set aside enough cash savings to handle any emergencies that you might encounter.
Next, you will be ready to start allocating your resources. Most investors use a simple and basic rule of thumb for allocating. You simply just take your age and subtract it from 100 and put the resulting percentage in stocks and the rest in bonds. For instance, if you are 30 years old, this means that you would put 70 percent of your resources in stocks and stick the other 30 percent in bonds.
Just because you own stocks and bonds doesn’t really mean that you are diversified, so how do you adjust these percentages to diversify? Well, most investors will usually take 10 to 25 percent of their stock resources and put it in securities. You can also shave off five percent off your bond recourses and put it in real estate. Just keep in mind that these are rules of thumb and you really can adjust these percentages by any means that you feel are necessary.
See my disclaimer.