Diversifying your Investment Portfolio
Diversifying your Investment Portfolio – Kerwin Kyle Lim
There is a popular saying that goes “don’t put all your eggs in one basket”. For many, this is true because there is always risk in investing. Diversifying your portfolio is a way to reduce and spread the risks as well as increase the chances of success in your investments. Think of it as growing a batch of plants and seeing which one would have the best-looking flowers. You are uncertain which investment will yield the most returns. It’s probably why you’d want to have a share of as many investments as you can so that you won’t miss out on an opportunity.
Aside from reducing the risks and increasing your opportunities, it also safeguards you from adverse market cycles. This is because different types of investments don’t necessarily react the same way as others do. An example would be stocks and real estate. Although both are good investments when the stock market is facing a crash the real estate market may not necessarily react the same way.
Diversifying your investment portfolio also helps you build your assets in the long run which creates stability and reduces volatility during the different market cycles. Placing all your money into a single investment can be very risky as it will be difficult for you to cope with a loss if that single investment does go down. This is where exploring different types of assets can come in useful. I’ll be talking about 4 ways you can diversify your portfolio if you haven’t done it yet.
What can you add to your investment portfolio?
Investing in stocks would probably be one of the most common and popular ways to invest. A stock is a form of security that indicates that you are a part-owner of a company. A single stock entitles a share of the company can that be as small as a fraction of a percentage of a company. Companies sell stocks to raise their funding and expand their operations. You can buy these stocks in the stock market through banks and brokerage firms.
More often than not, when people buy stocks they tend to buy blue-chip stocks which are top companies that have a proven track record. This is to reduce the risk of losing all your money in some unknown or startup company that does not have a proven record.
- When the economy and the market grow, your stock price increases since corporate earnings increase creating a higher demand for the stock.
- Some stocks offer to pay dividends to investors. Dividends are when part of the income of the company gets distributed to the investors. Depending on the company, they pay you either monthly, quarterly, semi annual or annually.
- You can invest in multiple industries across the market which can be beneficial if you are diversifying your stock market portfolio.
- The good thing about holding stocks is that you can do it in the short term or long term. Either period can give you profits and cashflow.
- Depending on the market you are entering, it is not as stable as the other investment classes. When the market goes down, you risk losing your entire investment.
- It takes a long time to profit depending on what rate you enter. If you happen to buy stocks at a rate where the market is at its peak, it may take some time before you can profit. Sometimes it takes weeks, months or even years before you can buy the stock at a low price.
- The stock market is like an emotional roller coaster. Depending on when you enter, you can sometimes see profits and sometimes losses. This is also the reason why you need to invest what you can only afford to lose.
Another type of asset class would be mutual funds. In layman’s terms, it’s a pool of funds where it gets invested in different types of assets by a company. The company that handles the mutual funds invests them in different types of assets such as stocks, bonds, etc. Like a stock, you also own a share of the mutual fund. Selling and transferring these mutual funds are also fast as stocks.
- Investing in mutual funds is more stable than stocks. Since the money that you invest is placed into different stocks/bonds, the chances of you losing all your money compared to stocks are lower.
- Mutual funds pay dividends. Unlike stocks, all mutual funds have dividends. Depending on which mutual fund you invest in they pay you either monthly, quarterly, semi annual or annually.
- It’s easier to manage since you don’t have to select each type of asset or stock to enter. The company that handles the mutual funds has professionals that do it all for you.
- You risk the chance of losing an opportunity in a single asset that isn’t covered by the mutual fund.
- Lack of ownership in the individual assets or stocks covered by the mutual funds. Although you are entitled to a share of the mutual funds, you do not have a share of the individual stock covered by it. If you prefer owning the individual stock and have certain rights over the company, you may be better off buying the actual stock.
3.There are hidden fees that come with buying mutual funds. Fees include management costs and other miscellaneous fees charged for purchasing the share of the mutual funds.
Cryptocurrency, in layman’s terms, is a new form of virtual currency to buy things online. Unlike a normal currency, this however is not issued by any form of central authority and some cryptocurrencies are created to be decentralized. This definitely a good addition to your investment portfolio.
- You have the potential for high returns. Take bitcoin for example exactly one year ago from when this article was written bitcoin’s prices were at $9,193 while at the time of writing this article is at $31,695.
- Growing acceptance and usage. An article from Coindesk.com in 2020 states that there has been $135 billion in cryptocurrency transactions in 2019, a 600% increase over 2018.
- A high potential rate of return could also mean a high potential rate of loss. Cryptocurrency in general has proven itself to be very volatile in the market wherein a day, its value can swing wildly.
- Its store of value. Unlike fiat money or stocks they don’t have any store of value which is a big reason why we see large fluctuations.
- These cryptocurrencies are unbacked and unregulated by any authority. Any transactions that happen can potentially be used for illegal purposes by criminals.
One of the best investments that you can make that will give you proper worth for its money would be real estate investments. Here is why you would want to invest in real estate over any other asset.
- Real estate only appreciates and does not depreciate. What I mean by this is the value of the property may depreciate but the land that it’s on does not.
- Unlike any of the investments that I have mentioned previously, real estate is a tangible asset. This means that you can build and develop your real estate investment.
- You can use this investment to rent and create more cash flow. The cash flow that you can gain here would be bigger and more stable than any dividend stocks and mutual funds can give you.
- Investing in land can also help you with retirement or whenever you may need it. Owning real estate can come in
One disadvantage that you would probably have investing in real estate is the time for it to appreciate. This is why many see real estate as a long-term investment and is why they invest early.
Investing in Memorial Lots
Golden Haven, the country’s largest and most beautiful memorial park has proven itself to be an investment that will be worth it. Offering a wide range of products from lawn lots, garden niches, columbarium vaults all the way to family estates and mausoleums. Golden Haven provides you with several options to choose from. Just like any real estate investment, the value of these lots will only go up. They can be used for personal or for investment purposes. Either way, investing in these memorial lots or real estate, in general, has proven itself to be one of the best investments you can add to your portfolio.
“Diversifying your Investment Portfolio”
About the author
Kerwin Kyle Lim is an intern at Golden MV Holdings, a student at the University of Asia and the Pacific.
About Golden Haven
Golden Haven Memorial Park is a subsidiary company of publicly listed Villar-owned Golden MV Holdings Inc. Currently positioned as one of the largest real estate companies in the country. Golden Haven offers premium death care services and prime memorial lots. It is dubbed as the most lucrative real estate investment with an average of 20% annual value appreciation.
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