Categories
Addressing the rising tide of risk from inflation and interest rates is a good thing, but the best way to create an overall diversified, long-term portfolio is to do the same for your money.
Here are six simple strategies that can make it easier for you to diversify your portfolio.1.
Don’t hold too much money on a single investment.
This is one of the oldest strategies, dating back to the 18th century, when most investors were in their 20s or 30s and did not have much exposure to risk.
Today, this strategy has become more popular, with a recent study showing that only about one in three Americans holds any stocks, bonds, or cash on a daily basis.
As a result, you’ll need to hold an adequate amount of money in order to invest effectively.
So how much do you really need?
The good news is that there are some very good strategies out there that will allow you to get your money out of the money market and onto an ETF or ETF-traded fund.
The best of these are Vanguard Total Stock Market (VTI) and Vanguard Total Bond Market (VABC) , which are the two best-known options for the average investor.
The VABC ETF is the most widely used of these, and the VABC Total Bond ETF offers more diversification than Vanguard Total Market .
However, you should be careful when considering the VABS, since they’re also very volatile.2.
Buy a minimum of $500,000 of cash.
Investing in cash is not for everyone.
While it’s generally accepted that you should hold on to a minimum amount of cash for long- term investing, this is not always the case.
In fact, most people prefer to hold on cash when it’s convenient and in the event that they have to make a purchase in the short-term.
For this reason, many people tend to opt for the Vanguard Total Cash Plan (VTCP), which provides a 10% annual cash bonus that’s tied to the cash portion of their account.
Vanguard Total Cash provides a similar bonus as the VTCP, but instead of 10% a maximum of $1,500 is available.
So if you want to maximize your exposure to the stock market, then this is the strategy for you.3.
Don and should not hold a significant portion of your savings in cash.
While cash is often viewed as a bad investment because it’s difficult to diversize, this advice is a little different than holding cash.
A key component of diversification is holding on to at least some portion of one’s portfolio in cash, because holding cash can result in you having to buy things with it.
This is one reason why it’s so important to diversification, but it’s also why it can be challenging to get a large enough portfolio of cash into the bank for safekeeping.
The Vanguard Total Retirement Plan is a great way to do just that, with the $2,000 annual cash grant tied to a cash-based savings account.4.
Invest in small, diversified stocks.
Most investors prefer to invest in stocks that are relatively small.
That’s because they can create an additional asset class for you, which helps to diversifying your portfolio in the long run.
For example, a stock that is relatively small might be good for a portfolio that you want more diversifying against, or a small business that you’re hoping to eventually sell.
In addition, small-cap stocks are typically more volatile than large-cap ones.5.
Be selective with your portfolio investments.
If you’re looking to diversively invest in the stock markets, you may want to consider investing in mutual funds or index funds.
In this way, you can invest in a large number of stocks and manage your portfolio differently each day.
In some cases, you might want to invest more in one or two stocks each day, while in other cases you might need to invest the same amount in more than one.
While these strategies are often good for short-to-medium-term investing, they’re not ideal for long periods of time.
The best strategy for long term portfolio building is to invest all your assets in a single, diversifying, large portfolio.6.
Set aside a percentage of your money for your favorite index fund.
Investors may not be thrilled with the prospect of buying a lot of stock in an index fund, but in the case of mutual funds, you have an alternative.
Mutual funds are designed to be as diversified as possible, with each fund representing different segments of the market.
In contrast, stocks are designed for longterm investing and, in the end, the goal of an index is to deliver a return on the investment.
Mutual fund investors are often better at diversifying their portfolios than their stocks, because they know that the fund they choose will represent the best of the best in the industry.7.
Take advantage of free ETFs.
