7 Reasons Why You Should Diversify Your Investment Portfolio

Few businesses in the United States survive till their 50th birthday. Only 36% survive until their 10th birthday and 21% make it to their 20th one, according to the US Census Bureau.

What does this mean for you as a regular investor? You will need to diversify your portfolio so that you aren’t over-invested in one sector or company. If that company or sector goes down due to some unforeseen circumstances, your investment portfolio would go down the tube, and with it, your retirement plans.

Keep reading to find out many other reasons why you should find alternate investments to invest in as a retail investor.

1. Success Not To Hinge on One Investment

You don’t want your success as a retail investor to be dependent on a single investment. As iterated earlier, what if that investment fails drastically?

Numerous horror stories are circulating the blogosphere of folks who invested their entire life savings into their company’s stock. They worked for companies that were doing quite well and decided that the best thing to invest in would be the company they worked for. Unfortunately, their loyalty came to bite them on the behind, when the company’s stock plummeted and they lost all their savings.

Don’t let this happen to you. You never know when something that’s a ‘sure thing’ might turn out to be a dud. Even if you are certain about the investment you are putting your money into, do not put ALL your money into it.

Have a rule for yourself that no more than 10% of your total investments should be in one stock or investment. This way you will stay safe and your retirement plans will not be too affected if that investment goes under.

2. Don’t Miss Out on Alternate Investments

The problem with not diversifying your portfolio as a retail investor is that you get over-invested into one sector or type of investment, and forget about the rest of the market. There are dozens of amazing alternate investments that you could be taking advantage of.

You might not know much about these alternate investments yet, but if you sign up for an alternative investment platform, you could spend some time learning about these varied investments. Who knows? You might even find something that turns out to be the next big thing.

Just make sure not to invest your entire retirement savings into it. No more than 10% of your total investment portfolio should be invested into any investment, be it alternative or typical. If you are closer to retirement, you can reduce this percentage even further.

3. Don’t Risk Your Retirement Plans

The problem with most Americans is that they haven’t saved up enough for retirement and as they get closer to their retirement date, they panic and scramble to find some investment that could make them the big bucks.

Firstly, fear and greed never did anyone any good in the investment market.

Secondly, don’t think that if you just found that one investment all your money worries would be solved.

Building up your retirement savings over time in a diversified portfolio is the best way to go about it. Don’t risk your entire retirement savings portfolio by putting too much of it into an investment that could tank.

4. Don’t Risk Different Market Conditions

The investment market and the world, in general, are always in motion. They are changing all the time, going up, down, and sideways. That’s why it’s important to diversify your portfolio, so you can make money no matter what the market is doing.

For example, if the market is going down, the bonds in your portfolio will do well. If the market is going up, the bonds might go down, but the stocks will do well. When the real estate market is down, gold does well, and vice versa.

All the markets are interconnected in myriad ways, but you can use these connections to make money in a wide variety of market conditions.

5. Don’t Forget to Rebalance

When was the last time you rebalanced your investment portfolio? If you are like most typical retail investors, the answer is probably ‘never’.

When one asset in your investment portfolio starts doing well, it begins to take up a bigger proportion of your total portfolio. That’s when it’s time for you to start selling off some of these assets, to rebalance your portfolio.

Otherwise, this particular asset might start taking up an inordinate amount of your portfolio space, resulting in an un-diversified and more vulnerable portfolio.

6. Choose Based on Your Financial Goals

Not everyone is going to diversify their portfolio in the same manner. For example, if you are closer to retirement, you will probably have more bonds in your portfolio, and solid investments like ETFs or gold. If you are far away from retirement, you might have more risky investments like crypto and stocks.

That’s why each person has to look at their specific situation, their financial goals, their retirement plans, and then make diversification decisions after that.

7. Start Diversifying Today

Do not wait a single moment after reading this article to start diversifying your portfolio. No matter how far away or close to retirement you are, you need to diversify your portfolio now. The sooner you do it, the safer your portfolio and retirement savings are.

Diversify Your Portfolio To Protect Your Financial Future

You and your family depend on your investment portfolio to sustain a positive financial future and an awesome retirement. You don’t want to panic at the thought of retirement or end up working longer because you don’t have enough savings or because you didn’t diversify your portfolio enough.

Keep reading through the related articles on our website to learn more about how to invest as a retail investor. Knowledge is power, especially in the investment realm.

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