Diversity is the one word you may hear from financial professionals more than any other. It is the essential piece of any good portfolio and a practice nearly worshipped by investors far and wide. All the fuss is not for nothing; in fact diversity may be the one thing that can keep your retirement account afloat even among the most financially turbulent of times.
Essentially there is no investment that consistently outperforms others and is less volatile. Stocks, bonds, mutual funds, even alternative investments all contain a very different risk/reward scenario and potentially keeping a finger on the pulse of each one may be the key to realizing the biggest gains from your retirement dollars.
Look at having two retirement accounts, both your company sponsored 401(k) and an IRA. The 401(k) is there to take advantage of your companies matching policies and the IRA gives you numerous investment options, picking up where your 401(k) may be limited. Diversity among your retirement accounts is a must.
Avoid sinking too much cash into one investment product, such as a costly mutual fund, according to the Motley Fool, an Investment Web site. Instead search for funds with lower thresholds and those among many competing funds in order to get yourself the lowest price.
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Unsure whether to stay with stocks or move to bonds? Think about your time until retirement and then make a wise choice. Risky investing is advised for those near the beginning of their careers, thus picking something like the Vanguard Balanced Index, where 60 percent of your money is put towards stocks and the other 40 percent in bonds might be an ideal choice. Lowering the risk among your investments as you close in on your retirement date is important to ensuring your nest egg is safe and ready to be used.
The ultimate diversification, according to the Motley Fool, is investing in a stock market index fund, which spreads your money out over some 3,500 stocks.
Investing some of your retirement in Securities, which is on the riskier side of investments, can be balanced out investing additional money in mutual funds or bonds, which are a slower growth, less risky investment. Thinking about how aggressive you want to be with your retirement can help guide your investing, but keeping some money on the safe side to balance that risk is always a smart strategy.
Another important aspect to your investing may be finding an advisor with low or no transaction fee’s to save on the unnecessary costs of moving your own money.
No matter your strategy, diversity can be an investor’s best friend. The old adage; “don’t put all your eggs in one basket” holds true. No matter if the market is falling into recession or a raging bull, using diversity to hedge against unnecessary risk can save you a lot of money in the long run.