Diversification. It’s one of those words that people like to toss around, but far fewer actually take the time to contemplate. What does it mean to be diversified, and when you are diversified, does it really mean that your portfolio is inherently more protected than anyone else’s portfolio? Do Self-Directed IRAs have anything to do with diversification?
The truth is, diversification isn’t always so easy to understand. Luckily, it doesn’t have to be complicated, either. Those might sound like two contradictory statements, but you’re about to learn why what many people consider “diversification” really isn’t diversification at all. In fact, some people might think their portfolio is diversified when really they have all of their eggs in one basket.
When a stock market crash comes, or some other series of unfortunate events should occur and wreak havoc on the economy, you’ll want to rest easy knowing that your money is in a variety of places—some of which are relatively unscathed by market fluctuations. How do you achieve this? Let’s take a look at what really defines diversification.
Diversification is More Than A Multitude of One Thing
Many people believe themselves to be “diversified” if they own more than one stock. Some people even take it a step higher, believing that if they have money in ETFs and index funds, they’re actually well-diversified. But what if all of your money is in stocks? Is that really diversification?
We say diversification is more than that. Diversification means having your assets in more than one asset type. And that means not having all of your eggs in one proverbial basket, no matter how many different types of eggs you might own in that one particular basket. If you want to diversify your portfolio and you own 100% stocks, you’ll want to look into alternative investments like real estate, precious metals, private companies, and more. These alternative investments help you build up a portfolio that’s well-balanced and ensures that should the stocks ever tank, you’ll feel just fine with the rest of your portfolio. And…if saving money on taxes is something you are interested in…then Self-Directed IRAs is the ideal ‘basket’ to hold your retirement assets in.
Diversification Requires Action
If you’re going to diversify your portfolio, then you’re going to have to take action. That might seem like common sense, but you wouldn’t believe how many people put off something as simple as portfolio diversification simply because they don’t “feel like it” that particular day.
If you’re going to implement an investment plan, your money isn’t going to move by itself. It needs you, its owner, to move it. And that means you’re going to need to log in to an account, create a new account, or talk to someone in order to get the process moving, depending upon where you’re starting from.
Diversification Doesn’t Mean Removing Yourself from Stocks Entirely
While we believe that -Directed IRAs are invaluable tools for diversifying your portfolio, that doesn’t mean that you should remove yourself from stocks entirely. A wise investor knows that stocks tend to go up over the long-term and you can hold stocks within your Self-Directed IRA; you just want to shield yourself against any unforeseen circumstances.
That’s why it’s a great idea to use a Self-Directed IRA. A Self-Directed IRA offers you the freedom and flexibility to choose your portfolio more easily, allowing you to implement your strategies with ease. If you want to invest in precious metals, real estate, private companies, or even more different investment types, through a retirement account, a Self-Directed IRA has the flexibility you need. find out more about Self-Directed IRAs and how they can impact your ability to diversify your portfolio and build long-term peace of mind, based on real financial security.