Forty or more musicians playing some twenty or so different instruments are needed to create what we call an orchestra. While a string ensemble is a pretty little thing, a whole orchestra is dynamic, full-ranged, deep-bodied and moving. It derives its captivation from its diversity of instruments and the way in which they are played. Contrast the light, airy sound of a flute with the deep resonance of the tympani and you will see what we mean.
The same holds true for your portfolio. It makes much better music when filled with diversification. The question, then, is, “What is diversification and why do I need it?”
Diversification is using several different “instruments” in your investment portfolio to mitigate risk of loss. It’s also holding investments that react differently to the same market or economic event. It’s the nature of the markets that while some assets go up, others go down, and vice versa. If you have your investments in stocks, bonds, gold or commodities, for example, you can spread out your risk and not take a huge tumble if the market declines. For, while stocks are going down, bonds (the less risky of the two) are going up. Gold is strong while the dollar is weak and the dollar is strong when gold is weak.
In order to diversify your portfolio, consider spreading your capital across these asset classes: US Stocks, US Treasury Bonds and Money Market Funds, foreign stocks—from developed and emerging markets, foreign fixed government issues, commodities, and our favorite: real estate. Diversifying like this means you are cushioning the effects of any one asset. If your portfolio is diversified, and the stock market should take an alarming dip, your investments in commodities and gold can possibly keep your portfolio from also dropping that far.
Besides minimizing your portfolio risk, diversification exposes you to more opportunities for returns when you go looking for other investments. Diversification safeguards you against adverse market cycles and reduces price volatility, minimizing the risk that one event would wipe out your entire investment portfolio.
Here at Paradyme we keep it simple by offering a one-step process to diversifying your portfolio. Our Diversified Asset Fund allows us to help you be a part of the orchestra. With a single investment you get an opportunity to take part in the stability of multiple projects that cover various asset classes. Our investing philosophy is guided by our commitment to help you invest, easily and securely. If the large hedge fund and pension funds are diversifying in multiple asset classes, why wouldn’t you?
We care for our investment funds in the same way we care for our pets. We check on them and nurture them and make sure that they are behaving. So, it might be disappointing if one starts to underperform. But don’t be too harsh if it sounds a sour note and don’t be tempted to pull your investments out to funnel into a better performing asset. Your top performer today might be next month’s fallen virtuoso. Remember, you can always tweak your investments, but you should always maintain a full orchestra of instruments—or, diversification.
For more information or fine tuning, contact Paradyme Investments to ask how you can make your investments play more harmoniously.