The most important piece of advice you will ever get from a financial planner or fund manager is to diversify your portfolio. Investing all your money in one asset is literally putting all your eggs in one basket. Even after getting your calculations and predictions right, buying one asset is too risky, especially for first-time investors. Diversification is important because markets are highly volatile. You are never sure of the movements of prices at any one time. Hence, investment managers will insist over and over again that you diversify your portfolio. Here are some tips on how first-time investors can diversify their portfolios.
1. Buy Different Assets
First-time investors tend to go for assets that they are familiar with or knowledgeable in. Unfortunately, the safe strategy often leads to huge losses. No matter how much you plan to invest, buy different assets. Build a portfolio of different assets such as stocks, bonds, funds, and cash investments among others. Buy stocks from different companies and different types of bonds including government and corporate bonds. One way to diversify bonds is to buy bonds with different maturities and ratings. Consider buying stocks and bonds from other countries as well, especially in emerging markets.
2. Consider Investing in Mutual Funds
Mutual funds are recommended for first-time investors because you can have a diverse portfolio with just one investment. Another advantage of mutual funds over individual securities is that you do not need to invest large amounts of money to achieve a diversified portfolio. You can invest small amounts consistently or every month and build a diversified portfolio with mutual funds. Mutual funds are a good place to start if you have a limited amount of money to invest. The funds are also recommended if you cannot afford to hire an investment manager.
3. Adjust Your Strategy as You Grow Older
Your investment strategy should change as you grow older. The market forces do not respond to your age, but you have little time and energy to follow up on your portfolio as you grow older. Your risk appetite is high when you are young but after you retire, it is advisable to go for lower risk investments. Do not stop diversifying your portfolio at an older age, but you should prioritize conservative investments.
4. Ask for Professional Help and Advice
You need all the information and advice you can get as a new investor. Analyzing market trends to make the right decisions may be a hard task if you have no background in finance. Fortunately, you can get help from investment management companies such as Carnegie Invest in choosing the right assets to invest in, based on your risk appetite and income. Investment managers will give you wealth management advice and help you plan for your retirement. Choose a company that gives you value for the transactional or monthly fee charged.
Learning how to make smart investment decisions take time but you can speed up the process by involving experts. If you consult wealth management companies from the start, you will avoid making costly mistakes. This does not mean that you will never make losses in your investments. However, professionals will help you minimize your risks and choose the right assets based on market forces.