Rumors are swirling that a market crash may be ahead for the U.S. economy, and earlier this month President Donald Trump tweeted that if he loses the 2020 election, “there will be a Market Crash the likes of which has not been seen before!”
Diversification is key to protecting against a market crash regardless of who is president.
Steps to diversifying a portfolio should always be taken, quarterly or yearly, and as an individual ages and can no longer rely on long-term investments.
Fill the portfolio with multiple types of investments
A weak portfolio is one that is comprised of just stocks or just one type of investment, so investors want to hold a variety of different securities. These may include:
- Stocks.
- Bonds.
- Exchange-traded funds.
- Index funds.
- Cryptocurrency.
- Cash.
- Real estate investment trusts.
- Precious metals.
Younger investors can afford to take on more risk, so FX trading in Australia or dabbling in forms of active trading can lead to growing their retirement accounts. They should assess the risk of all opportunities in order to determine which investments are too high-risk for their portfolio.
Bonds, for example, are low-risk, while cryptocurrencies can be too high of a risk due to their volatility.
Diversify in different sectors
Stocks have multiple investment options. Investors can save time by investing in mutual funds, but they will also be paying fees. Individual investments are a good option, but a fee is charged when investing in any stock.
Investors can buy in chunks to save on fees instead of purchasing a low number of shares at one time.
Sector investing is also smart, but market players don't want to invest in just one type of stock because they may all fall at the same time.
When in doubt, invest in an index fund like Warren Buffett recommends. Low-cost index funds are diversified and will often provide a better return than mutual funds.
Continue rebalancing the portfolio
The right allocation today may not be the right allocation tomorrow. As a result, investors should rebalance their portfolios every few years. They will want to keep a close eye on the market and lower their risks as they age.
When rebalancing a portfolio, investors eliminate underperforming assets. As their risk appetite is lower, they will start moving away from stocks and start allocating funds to bonds and cash. While these assets may offer lower returns, the lower risks are ideal for an investor nearing retirement.
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