Investing can be both exciting and daunting, and it takes years of experience to understand that. It’s an avenue to grow your wealth, but it comes with its fair share of risks. The key to successful investing lies in building a portfolio that balances risk and reward, providing a safer and more robust financial foundation.
In this guide, we’ll walk you through five straightforward and effective ways to make your investment portfolio more resilient. So you can have a more safer and stronger investment portfolio.
Invest with a fixed term deposit.
A fixed term deposit is an investment that involves depositing money into an account at a financial institution. These investments typically have short-term maturities ranging from one month to a few years, with varying required minimum deposits. One key aspect to understand about term deposits is that you can only withdraw your funds after the term ends. However, in some cases, the account holder may allow early termination with prior notification, albeit with a penalty that occurs over the interests you earn.
Here’s a tip: Consider a laddering strategy instead of investing a large lump sum into a one-term deposit. This strategy involves spreading your funds across several term deposits with different maturities, coming due at regular intervals. This trick will allow you to take advantage of switching to a different asset class on opportunities.
As the deposits mature, you can use the money for income or roll it into another term deposit to continue the ladder. This method is popular among retirees who need a steady income stream.
For instance, you can deposit $2,500 each into five, four, three, two, and one-year term deposits. It ensures that one deposit matures yearly, providing flexibility to withdraw or reinvest the funds at the current market rate. You can even use this strategy across different financial institutions for added diversification.
Invest in gold.
Gold is one of the oldest investments known to humanity, and it remains a vital asset for diversifying portfolios. There are several reasons to consider adding gold to your investment mix.
One of the notable attributes of gold is its capacity to serve as a safeguard against inflation. Unlike paper currency and certain other assets, gold tends to rise in value alongside increases in price levels. It means that when inflation rates surge, the value of your gold holdings typically increases as well.
In essence, gold helps you preserve your purchasing power in the face of rising living costs.
Another compelling reason to invest in gold is its intrinsic value and tangibility. Gold is a tangible asset, unlike stocks, bonds, or even digital currencies. It’s something you can hold in your hand, which gives it a unique sense of security. The appeal of gold as a precious metal isn’t rooted in speculation or promises; it’s backed by its intrinsic value and the timeless allure it has held for centuries.
Use index funds.
Index funds offer a simple and cost-effective way to build a diversified portfolio. These funds track broad indexes like the S&P 500. Investing in them allows you to gain exposure to a diversified range of companies and industries without the complexity of selecting individual stocks. If you desire a more hands-on approach, index funds can also target specific industries or sectors where you may want more exposure. While some specialized index funds may be slightly more expensive, they provide a quick way to add sector-specific diversification.
Keep some cash.
Financial markets can be volatile, and the value of your investments may fluctuate significantly over time. So, it’s wise to keep some of your assets in cash to mitigate the impact of market downturns. This cash cushion acts as a buffer, allowing you to weather market turbulence without being forced to sell your investments at an inopportune time. It will give you a mental peace to take right decisions. Moreover, life is unpredictable, and unexpected expenses can arise at times. Whether it’s a sudden job loss, a car repair, or a medical emergency, readily available cash can provide peace of mind and financial security. Instead of scrambling to liquidate assets or resorting to high-interest loans, you can tap into your cash reserves to cover these unforeseen costs.
Diversify internationally.
While there are numerous investment opportunities in the United States, it’s essential not to overlook the rest of the world. In a global economy, attractive investment opportunities exist beyond national borders. By focusing solely on the U.S., you may miss out on growth potential elsewhere.
Here are examples of how you can diversify your investment portfolio across international markets:
- Include international bonds in your portfolio to add stability and income.
- Consider purchasing exchange-traded funds (ETFs) or mutual funds that track major European stock indices.
- Investing in stocks of companies listed on foreign stock exchanges.
- Engaging in foreign exchange trading (Forex) or investing in foreign currency instruments.
- Allocating a portion of your portfolio to emerging market investments like China, India, or Brazil.
Global diversification can also help protect your portfolio from the adverse events that affect the U.S. exclusively.
Final thoughts.
Incorporating these strategies into your investment approach can help you build a resilient, adaptable, and well-prepared portfolio to meet your financial goals. Remember, aligning your investment choices with your unique circumstances, risk tolerance, and long-term objectives is essential. Talk to a financial advisor to tailor these strategies to your needs and start your journey toward a safer, more robust investment portfolio today.
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