diversification plays an important role in financial security so how can you diversify your assets for maximum ROI?
As you’re most certainly aware, diversification plays an important role in financial security – especially as you keep an eye on retirement and think about the sort of lifestyle you want live down the road. The question is, how can you diversify your assets for maximum ROI? While nobody knows the answer to this question, there are plenty of ways to get yourself on the right path.
5 Tips for Better Portfolio Diversification
Believe it or not, entrepreneurs – who are among the savviest people on the planet – aren’t very smart when it comes retirement. At least that’s what the averages and statistics show.
According to one recent study, 37 percent of entrepreneurs have no retirement savings plan, while 21 percent have used whatever savings they previously had to fund their business. Roughly 18 percent of entrepreneurs plan to sell their business to fund their retirement.
Those are frightening statistics when you think about the fact that most people will live for 18 to 23 years in retirement. Even using conservative estimates, that means the average person will need at least $650,000 tucked away (and likely more than $1 million) in order to meet basic needs.
Step one is understanding the importance of retirement and begin building a portfolio. Step two is diversifying that portfolio for maximum protection and gain. Here are some tips that will help you in pursuit of the latter:
- Stocks and Bonds
Most financial advisors will encourage you to place a large percentage of your retirement wealth in stocks and bonds (or good growth mutual funds that are attached to stocks and bonds). The stock market has averaged solid returns over its history and you can’t go wrong with a stable, long-term investment spread out over reputable holdings.
While most portfolios will be somewhat heavy in stocks and bonds, it’s a good idea to expose yourself to the futures market as a way of increasing your leverage and opening your portfolio up to a new set of assets. You can either find a futures broker or teach yourself how to trade futures. Either way, your portfolio will thank you.
- Real Estate
If you have the financial resources to invest in real estate, you might want to consider throwing some property into your portfolio. This can come in the form of land holdings or income producing properties. If it’s the latter, make sure you have the time to manage these properties (or can hire someone who does).
- Insurance Policies
If you’re married and thinking about retirement from a couple’s perspective, then insurance policies are also a great investment. Life insurance, if affordable, is a good way to ensure you and your spouse are okay should either of you pass well before the other. Long-term care insurance is a good form of protection against extended nursing home care (which can quickly deplete a nest egg).
- Your Business
While you don’t want your business to be your only retirement asset, it can certainly represent a portion of it. Just make sure you have an exit strategy so that you’re able to liquidate when you decide to move on. The last thing you want is to be tied up in it when you really need the cash.
Set Yourself Up for Success
Entrepreneurs have to take retirement seriously. While there’s something to be said for living in the “here and now,” you don’t want to find yourself at retirement age with nothing in the bank. A small, well-diversified nest egg is better than nothing at all. Start working on it today and you’ll be better off 10, 20, or 30 years down the road.