Change can be difficult to put into motion. We get used to our routines, our favorite take-out spot, a certain hairstyle. If we do something different, what if we don’t like the result?
Many of us think about our finances in the same way. Our funds are doing okay, but in reality, we would like to know our funds will grow to a point that is beyond just “okay.”
To change our financial future, we need to look at diversification. By diversifying your portfolio, you can help decrease risk while also reaching your future goals with confidence.
Diversity Can Minimize Risk
One primary role of diversification is to minimize risk in the stock market. This doesn’t just mean diversifying between growth stocks and value stocks. True diversification requires incorporating a mix of different types of investments—think stocks, bonds, international investments, real estate, etc.
There are varying factors that govern the amount of risk you’re open to. If you are banking on your money being there for you on a certain date, it may align better with your financial plan to utilize a more conservative mix of investment assets with a history of lower volatility. Having a portfolio that is diversified with lower risk will give you peace of mind.
As we mix and match asset classes and strategies, risk-capacity decisions need to be made no matter the timeline length. By optimizing the way your portfolio is constructed, we can help minimize risk and maximize returns.
Diversity Can Lead to Added Gains
Since its inception in 1926, the average return from the S&P 500 has been above 10%. Learning a bit of stock market history often puts many at ease when deciding to move money from a savings account into the stock market.
Downturns and recessions are certain realities during one’s lifetime, but it’s the same reason many wealth managers suggest taking a long-term view on investing. Simply keeping your money in the stock market versus quickly buying and selling is a risk-mitigation strategy of its own.
These downturns also pose new opportunities. Take the global pandemic: 2020 created a unique window of opportunity. Certain high-growth investments performed exceptionally well as the economy reacted to COVID-19, while the brief drop in the market made some value investments available at deeply discounted prices. 2020 provides an example of how investments respond differently to economy-wide shifts, which underscores the importance of diversification as a hedge against long-term and short-term losses.
Because of the unpredictability associated with short-term stock market success, diversification and investing according to when you need the money can help you reach your goal with more confidence when compared to putting all your eggs into one basket.
Diversity Focuses on the Right Mix for You
Perfection is notoriously unattainable, so calling an investment mix “ideal” can feel like a loaded term. Everyone has their own unique goals, dreams, timelines, and risk capacity—what’s ideal for one may not be ideal for another. The closer you are to retirement, perhaps a more conservative mix is a better fit. Remember that portfolios can change with time; that’s the beauty of the stock market—you can change your portfolio as your goals evolve. Diversification helps to achieve the right mix for you and your situation.
Ready to Take the Next Step?
As a financial advisor, I want my guidance and expertise to help my clients make smart choices about their money to achieve their goals based on what is important to them—regardless of what happens in the markets, the economy, or elsewhere. At Infiniti Wealth Management, our goals are the same as yours: the growth and preservation of your wealth.
If you’re looking for a different approach, one that doesn’t involve high-pressure sales tactics or a one-size-fits-all philosophy, let’s have a conversation. Call our office at 845-278-8638 or send us a message to set up a complimentary consultation.
Michael Durante is a founder, Certified Financial Planner™ (CFP®), and Certified Divorce Financial Analyst™ (CDFA®) at Infiniti Wealth Management, an independent, fee-only financial advisory firm. With over 25 years of experience, Mike specializes in serving women who are going through a life transition, whether that’s a divorce or the death of a spouse, as well as pre-retiree and retiree couples. He is passionate about helping his clients develop a personalized financial plan based on their values and goals so they enter retirement with confidence and peace of mind. Mike has both a bachelor’s degree in business administration and an MBA from Pace University. When he’s not working, Mike loves spending time outdoors hiking, biking, walking, golfing, campfires, the beach and doing yard work, as well as spending time with family and friends. Mike also enjoys to read, travel, and check out local restaurants and events. To learn more about Mike, connect with him on LinkedIn.
October 12, 2022 - Michael Durante, CFP®, CDFA®