The Importance of Diversification in Your Retirement Portfolios and How Gold Can Help
The idea behind portfolio diversification is to mitigate risk by allocating your investments among different financial industries, instruments, and other categories.
While diversification isn’t guaranteed protection against financial loss, it is a vital component of achieving long-term goals while reducing risk as much as possible.
Some investors shy away from managing a diversified portfolio owing to the possibility of lower rewards. However, when talking about retirement portfolios, diversification not only promises growth but also protects it from falling into recession.
In this blog, we’ll underline the importance of diversification in retirement portfolios and how gold plays a central role in growth strategies.
Simply put, by diversifying, you’re not placing all of your eggs in a single basket. For example, let’s say most of your portfolio comprises of automobile stocks.
Now, let’s assume that a major automobile manufacturer recalls its latest model due to a braking fault found soon after its release. Naturally, share prices will plummet and your portfolio will take a significant hit.
However, if you diversified your portfolio and also purchased a few airline stocks, the loss would be counterbalanced by the other and you wouldn’t have been affected as much.
But this example just speaks about stocks, with the right retirement account; you can invest in multiple businesses across various industries. The more uncorrelated your portfolio is, the higher the risk mitigation.
It also helps if you have a firm understanding of how different markets affect each other. For example, equity and bond markets generally move in opposite directions.
So if you’ve invested in the right places, the loss of one would be counteracted by the other. Investors can go one step further by diversifying outside their native geographical boundaries. Volatile markets in the United States are less likely to affect those in Europe.
What Your Portfolio Should Look Like
The following are examples of things you can include in your portfolio to add diversity.
Short Term Investments
Ideally, your portfolio should have money market funds as well as short-term certificates of deposits that add to stability. Certificate of deposits are guaranteed/insured by the FDIC which makes them safer, however, money market funds are more liquid.
Buying stocks essentially allows you to own part of a company and also comes with benefits like capital gains and dividend payouts especially when stock prices go up. Domestic stocks are preferred by investors as they enable numerous growth opportunities in the long-run.
A good example of this is Warren Buffet, one of the greatest investors alive who has shares in Wells Fargo, Apple, Bank of America, Coca-Cola, and Kraft Heinz Company—all stocks from different sectors and companies.
Sector and Real Estate funds
Sector funds are focused on a specific segment or sector of the economy. Incorporating sector funds into a portfolio opens up unique opportunities in various economic cycles. Real estate funds are valuable because of their ability to protect against inflation.
No other asset offers the same level of stability as precious metals and in particular, gold. Setting up a Gold IRA is a great way to leverage stability and unique tax benefits.
It’s the most effective way of protecting your retirement portfolio especially against worst-case scenarios like wars, economic collapse, and natural disasters.
Interested in opening a gold IRA? Orion Metal Exchange is the go-to place for purchasing precious metals or finding help with setting up a precious metals IRA. With more than 50 years of experience, they have the expertise to help you diversify your portfolio and make the most out of your retirement!
Contact us today for more information.