We all know that we currently live in an uncertain economy. No matter what the political powers claim, we can all see the national debt increasing and poverty continues to grow. In the near future, I would not be shocked if our economy suddenly worsened. So, what do we do to prepare for a potentially volatile economy? What do we do with our investments?
The easy answer to this question is “diversify”. That’s what we always hear our financial advisor say, right? But what does that really mean? Ok, so I can choose a couple different stocks, but does that mean my money is that much safer? After all, it’s still all in the stock market.
To avoid high risk of stock market or, volatility in metal price or falling CD rates you need to diversify your investment in to multitude of vehicles and means.
It’s true, diversifying your investments within the general market does help, but to be completely honest, you can do better. Here’s some ways that you can diversify your money, both inside the market as well as outside.
(Related – Ideal invest mix for retirement, per age group)
10 investment options that can minimize your investment risk
1) Invest in Mutual Funds – this is really a large collection of stocks, so just by owning one mutual fund, you are technically already more diversified than if you were to own just one stock. I definitely wouldn’t stop here though.
2) Invest in Bonds – you could either invest in government bonds or corporate bonds, but if you choose a high-grade, then your money will actually be quite safe. You won’t make an amazing return on your investment, but it’s better than doing nothing! Plus, you’re a little more diversified.
3) Invest in Precious Metals – when I say invest in precious metals, I don’t mean purchase a stock of precious metals, I mean go outside your house and go buy some! If our economy falls completely flat, what do you think will be worth more? An electronic copy that says you own gold, or if you actually have pieces of gold in your hands. I would certainly vote for the latter.
(Related – Few Reliable Ways to Buy Gold for Investment)
4) Certificates of Deposit – these are typically called CDs and they’re pretty much a glorified savings account with limited access. They pay a very modest percent interest, but again, it’s good to have some of these safe investments that are more secure, just in case.
5) Real Estate – I absolutely love real estate. If there’s one thing that we have a limited supply of in this world, it’s land. Once our world becomes overpopulated, land is going to be a valuable necessity.
(Related – Investing in Real Estate to Create Wealth)
6) Collectibles – while some don’t often consider them to be investments, collectibles hold value for certain people. If you have artifacts from the Civil War, those are most likely quite valuable to a collector. The more rare the items are, the more valuable they become.
7) Art – much like collectibles, the more rare your piece is, the more your art piece is worth! If you have a knack for recognizing quality, original artwork, don’t be afraid to make some investments in this category.
8) High-Yield Savings – did you know there are quite a few credit unions that are offering 3 or 4% interest on your checking account? That could earn you hundreds of dollars a year with very little effort, and with very minimal risk!
9) Invest in the Foreign Market – If you’re investing your money in the market, don’t forget to purchase some shares within the foreign market as well. After all, if our country falls on our back, most of your domestic shares will become worthless. It’s good to diversify overseas.
10) Invest in Large-Cap Stock – when I think of large cap stocks, I think of Pepsi and Microsoft. These are large companies that increase in value steadily and might even pay out a dividend each quarter. They are less volatile and are a wise choice when diversifying your funds.
Among the list of options, I have invested in Saving accounts (if you call that an investment) where emergency fund is deposited. I have Mutual fund through T Rowe Price and Fidelity. I have some global stocks indirectly through mutual funds. I have some gold shares and looking to have a few gold coins as well in near future. I do have large cap, dividend paying stocks through my broker Merrill Lynch.
(Related – 10 best practices for dividend investing)
Real estate investment is another option I should give a try on. In future I may buy a rental property, it all depends on how fast we can save money for our first home, the rental property would come next. I have exposure to bonds only from my 401 (k) account. 20% of my retirement portfolio comprised of high yield bond funds.
Readers, are you prepared enough to tackle any sort of adverse conditions that can out your entire investment at risk? If yes, do share with us your way of spreading investment risk.