How to Diversify Your Portfolio on a Shoestring Budget

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The only way to achieve financial well-being is through careful money-management. I say this as someone who didn’t always prioritize investing, saving, and portfolio diversification. Over the years, we have seen financial markets expand and contract accordingly. Fortunately, investors with enough wherewithal have generated tremendous returns from Wall Street since 2009/10. Over the past 6 years, the Wall Street Bulls have been charging and many financial portfolios have benefited accordingly.

There is just one problem: I came into the market a little too late. Facebook, Google, Twitter, Tesla, Microsoft, and other big-name tech companies were already flying sky-high when I bought into the markets. Nonetheless, I’m confident that growth will continue and my portfolio will look a lot healthier than it currently does. I’ve learned from experience that the best financial portfolios are those which mitigate market risks over time. In other words, dollar/cost averaging is the best form of investment in the financial markets.

Don’t be scared to invest

Rather than taking a lump sum every couple of months and plowing it into mutual funds, individual stocks, ETFs or 401(k) investments, break that figure up into manageable portions and invest monthly. That way you get a rather even spread when purchasing equities. Consider that Apple Inc. (AAPL) is already up 39% for 2017 (1 June 2017), Facebook is up 33.52% for the year to date, and Google is up 26.40% for the year to date. Had I invested in Google three years ago, my returns would be 77.08%, Facebook returns would be 137.98%, and Apple returns would be 70.08%. These are huge increases to your portfolio, and they are entirely possible if you start investing early in your career.

If you’re wondering what I’ve been doing with my money in all that time – I had it sitting in zero-interest-bearing bank accounts. And guess what? The banks were charging me to keep my money in their vaults. Many folks who are sitting on the fence about investing in the financial markets cite the volatility of markets as their reason for not getting involved. They are scared that if markets crash their entire nest egg could be wiped out. Is this possible? Yes, it is.

Recall the crash that wiped trillions of dollars off Chinese bourses when the Shanghai composite index and the Shenzhen composite index crashed? This took place in 2015/2016 when the stock market bubble in China burst. At that point, Chinese GDP was way above 7%, but it tapered off to 6.7%. Commodities demand plunged and global bourses recoiled. However, China’s stock markets have recuperated and the world’s #2 economy is back on track with strong gains. This is the nature of financial markets. Remember, what goes up must come down, and vice versa. Even in a bearish market climate, there are viable investment opportunities that are significantly better than money in a bank account.

Protect your investments by diversifying your portfolio

Hedging is one such practice that protects the value of your investments when components of the financial markets sour. Gold is regarded as one of the best hedges against equities weakness. When geopolitical uncertainty mounts, investors withdraw from equities markets and emerging markets and sink their money into gold. Much the same is true with the Japanese Yen, oil, and Treasuries.

A nifty trick that I learned from a leading Lionexo options trading broker was the following: Split your investments into a balanced mix of domestic stocks, foreign stocks, bonds, mutual funds, ETFs and currency holdings. You can even go a step further, and diversify with contrarian trading options in the form of CFDs and other derivative trades. Many of us expect quick returns on investments. This is hardly ever the case.

Important Considerations when Investing

Unless you are speculating on futures markets, with leverage, margin, and higher risk, you are invariably going to have to wait for your underlying assets to appreciate over time. Cash in the bank is at best a cushion against stock market volatility. It will not do well in an era of hyperinflation and low interest rates. Nonetheless, a balanced portfolio remains the ideal option when it comes to planning for your retirement. The age-old aphorism: Never put all your eggs in one basket holds true in every way. A deliberate mix of asset classes (indices, currencies, commodities, treasuries, and stocks) is your best bet in today’s times.