The early fall out from ailing credit, fluctuating stocks and the recovery housing markets has still left many Americans asking themselves scary questions:
When will this recession end?
What is going to happen to the value of my home?
Will I be able to retire?
What am I supposed to invest in now?
Though none of these questions have any clear-cut answers, Pillar Capital Advantage offers solutions to investors. At the epicenter of these strategies, the investor must remember diversification is the key.
“Diversification is absolutely vital to minimize risk and to emerge from a down market relatively unscathed,” said Matthew Sindlinger, Pillar Capital Advantage.
Yet, people often do two things when experiencing a truly negative market: they do nothing, or in fear they sell everything and invest in something different.
Most investors find neither option attractive for the financial portfolio. To leave money in an investment with a downward trajectory, it can be counter intuitive to most financial goals. Conversely, an investor who jumps on the next big trend can be foolish if the investment vehicle is not completely understood.
To the investor who is trying to weather this current downturn, one method is diversifying into neighboring investment, keeping fear in check and rationale in control.
No one can predict the future
Even when values rise steadily for years at a time like the case of the housing market, most people will not be able to time their exit from the market exactly. Accepting that neither the market nor human intuition are perfect empowers investors to move on from what they cannot predict or control and onto what they can.
“Investors have the control with the level of diversity within their portfolio,” said Sindlinger.
The most common ways to ensure that investors’ portfolios are diverse is to examine what types of assets they are investing in, what geographical regions these investments reside in and how many industries or markets these investments fall under.
One of the easiest ways to diversify your assets is to invest in both enhanced CD and real estate portfolios. These markets are fairly independent of each other and profits gained in one can mitigate or overcome the losses experienced in another.
No investment is safe from losses and depreciation, and everyone is almost certain to lose money now and again. Knowing this should deter most investors from moving all of their money into a different investment just because there is a blip in the market.
Instead of acting out of fear, many advisers suggest that anyone worried about their current holdings or suspicious of some potential dealings should do their homework.
The investor should also research an investment vehicle in general, noting how similar assets, assets in the same region and assets in the same market sector have performed over time. Be sure to note any particular conditions—whether directly or indirectly linked to the investment—that might affect its performance.
These could range from a nationwide housing boom to a terrorist attack, upcoming holiday season or emergence of a new trend. Charting an investment vehicle’s path can help you predict how it may respond to future market conditions, allowing you to determine whether it is a viable opportunity for you.
Tread carefully on trend investments
Regardless of how great an investment opportunity sounds or how much you want to diversify, experts agree that it is never a good idea to invest in something you do not completely understand.
If a financial adviser cannot succinctly explain an investment opportunity to the point that you understand your level of risk, exit strategy, and how any potential fees or profits accumulate, then that opportunity is probably not right for you.
If you’re not familiar with an asset, do not jump into it, you can make subtle shifts in your investments, but don’t go head-first into [alternative investments like] gold.
This doesn’t mean that you should never move into new territory simply because you don’t know every facet of the investment.
It simply means that you must conduct your own due diligence and spend the appropriate amount of time with your adviser, who should be experienced in that investment vehicle.
A down market may also provide the perfect opportunity to explore investments that have a structure similar to those with which you are already familiar such as real estate.
Diversifying your investment portfolio can seem a bit like placing bets on a roulette wheel—the more numbers you pick the more likely it is that you’ll come out a winner. However, just as in roulette, there comes a point where the payout is smaller than the amount of money you spent betting on so many numbers.
To avoid this blind-betting strategy, be sure to do your homework, learn about any desired investment vehicles and align yourself with advisers who have your best interest at heart.
For more information on investment opportunities, feel please contact Pillar Capital Advantage.