How Can Investment Diversification Protect Your Future
How can investment diversification protect your future and your portfolio?
I often stress the importance of investment diversification as a key strategy for protecting one's financial future. Diversification is the process of spreading your investment capital across a variety of different assets, in order to spread risk and maximize returns.
It’s often referred to as not putting all your eggs into one basket. For example, if your investment portfolio is 100% stocks, it’s not diversified and you’re entirely exposed to one asset class without any offsetting hedge or other investment.
So how can this technique protect your future?
Investment Diversification can be Within any one Asset Class
One way to diversify investments is by investing in different assets like I just mentioned, but it can also be applied within one asset class.
Here’s what I mean:
With some asset classes, like real estate, you can invest in deals that are located in different geographies (and thus markets) and you can invest in different types of properties.
For example, apartment buildings are classified as A,B,C, or D. Additionally, you can invest in self storage, mobile home parks, and even single family housing – which are all under the umbrella of “real estate”. You’d technically be investing in one asset class, but it’s spread out over a huge range of property types.
Investment Diversification can Shield Against Market Ups and Downs
One of the primary benefits of diversification is that it can help protect you from the negative effects of market volatility. When you invest in a diverse range of assets, your portfolio is less likely to be affected by the fluctuations of any one individual stock or market sector.
If you invest solely in the stock market and it crashes like it has in the past, a massive stream of your income could be completely wiped out. In this case, it would have been wise to have been investing in some other asset.
This leads me to my next point, that investment diversification can protect your future by leading to higher returns.
Investment Diversification Can Lead to Higher Returns
By investing in different assets, it can potentially lead to higher returns in the future. This is possible because you’re able to tap into different sources of income and growth.
You wouldn’t have to rely on the income coming from the stock market on its own, but instead you could reap the benefits of the combined force of the stock market and real estate, for example.
If you utilize those different streams of money, you can maximize your returns over time.
Diversification might look different for you than it would for the next person who reads this article. The best strategy for you will depend on factors such as your age and risk tolerance. It's important to take diversification into consideration when planning your investment portfolio.
But also know that you don’t need to figure it all out yourself. There’s a lot of investment options out there that are foreign to you and me, so before you make a decision, consult someone who’s an expert in that area.
If you’re realizing that you need to buy more baskets for your eggs, I want to suggest real estate as possibly the best option. There’s incredible variety within the class itself, and is known to be the best performer in recessions and high inflationary environments.
In order to achieve diversification and earn truly passive income, I strongly recommend considering investing with Nighthawk Equity.
We’re an investment firm that specializes in helping individual investors diversify their portfolio through investing in multifamily real estate. Our team of experienced professionals can provide expert guidance and support to help create a customized investment strategy tailored to your specific financial goals.
Don't hesitate to take the first step towards a more secure financial future.
Invest with Nighthawk Equity today.
