Although many people have a well structured investment plan, most of these strategies involve investing in a range of stocks in the market. But true diversification of portfolio can be achieved only by parking your funds in investments other than stocks also.
If you have a stock intensive investment portfolio, it is time to take a look at the various other options available. These investment products can give you some great advantages and unique benefits to match the returns you get from investing in stocks.
In order to have a good diversified portfolio you must have the right mix of ETFs, MFs, CDs, commodity, currency, real estate investment, bonds and of course, stocks in your investment portfolio. Let us have a quick look at some of these investment options.
ETFs and MFs: These offer readymade diversified portfolios for small investors who lack the fund power to properly spread their risk over a number of instruments. These are simple, hassle free investment options, which can be traded like stocks. For those who lack the knowledge and skill to track the markets, these are good investment options.
Commodities: Commodities are in demand all around the world. During inflation, commodities gain value. This makes them a good inflation hedge investment. While seasoned investors may trade in individual commodities like gold, silver and oil, amateurs too can partake in the sector via commodity index funds.
Currency: Currencies are very similar to commodities in character. Again, new comers can opt for currency ETFs and MFs while the more savvy investors can opt for currency futures trading to maximize their gains.
Real Estate: In spite of the housing crash, land values continue to be a good investment avenue. Traditionally, value of good real estate in decent, accessible neighborhood has always appreciated over time. However, this is definitely a long term investment and expectation of short term gains will lead to disappointment. REITs are a good way to capture the benefits of real estate appreciation.
Investments for Portfolio Stability: Bonds, CDs and money market funds give some stability to your portfolio to balance the high risk of other components. Bonds, especially, function as inflation hedge investments and also stay viable during economic crises. During the recent crash, bond prices continued to rise steadily although share prices plummeted to dismal levels.
Maintaining the right mix of these investments will depend on your risk appetite and investment goals. However, it is important to have proper understanding of these instruments in order to invest wisely and gain from them.