The Importance of a Diversified Portfolio

Adam has a portfolio consisting largely of hospitality and travel stocks.  During the pandemic, his stock portfolio included airlines, cruise ship operators, hotels, and other companies in the hospitality sector.  The global pandemic largely affected his portfolio as all of these businesses ceased operations for a period of time.  Adam had to sweat out the pandemic and watch his portfolio tank while other sectors, like online businesses, such as Amazon and Shopify, earned huge profits.  Nobody could accurately predict how long the pandemic would affect travel restrictions, but the point here is that Adam had most of his eggs in one basket when he should have been investing in other sectors.

Proactively balancing your portfolio will reap huge rewards over time.  Instead of looking at one sector and owning many companies inside of it, it’s much more wise of a move to look into many sectors and spread your investments around.

There are several ways you can diversify your portfolio, according to Investopedia.

Sector and Industry Investing

As we explained above, Adam was heavy into the travel and hospitality industry.  In order to diversify for a pandemic, he should have invested in streaming services, companies like Netflix, and other media companies, to provide counter balance.

Diversifying Across Companies

While Adam didn’t create the best portfolio for a global pandemic, he did create a solid portfolio of diversified companies in one sector.  Owning hotel stocks, cruise ship stocks, and airlines was a solid idea to spread his money out in the travel sector, and that’s a prime example of how someone could diversify across companies in one market sector.

Diversifying Across Asset Classes

Long time readers will know we’ve harped on diversifying investments among many different assets classes for quite a while.  Real estate investing, commodities, and now cryptocurrency, are all great asset classes that can be utilized to minimize investment risk.  And let’s not forget about something we STRONGLY believe in – precious metals.  As one of the longest running forms of currency, precious metals are a hedge against inflation and can help your portfolio through economic turmoil.  But don’t just take our word for it, get a free gold and silver investing guide from Goldco and find out for yourself.

We are advocates of investing in precious metals, especially with a recession on the horizon.

Our research identified Goldco as the #1 gold IRA company, and it’s the company we recommend to family, friends, and readers of this blog.  

Diversifying Across Borders

In today’s day and age, it’s easier than ever to invest across borders.  You can invest in currency, property, and more.  Imagine what a drastic tax law change would do to the U.S.  Are you certain you want all of your investments to be tied to the U.S. economy?

Diversifying Across Time Frames

Don’t put all your investments into “long shots that may pay off in five or ten years.”  That’s a very risky way to invest that could wreck your portfolio. Instead, choose lesser producing, short term liquid investments coupled with long term, stable investments, and then have a small portion of your portfolio into more high risk investments, if you have the appetite for high risk investing.