Portfolio diversification is a major key to managing risk, and is best practiced before it becomes a necessity. By the time the average investor reacts to the market, much of the gains and losses will have already occurred. Diversification protects against market losses and also takes advantage of market gains. It’s how risk is managed that becomes important in a long-term investment strategy.
Invest in Equities but Spread the Wealth
Historical evidence suggests that the return on equities is higher than most other investment instruments over the long term. For the average investor, however, choosing winners is difficult to do on a consistent basis. Your best bet for spreading the wealth is to work with a financial advisor who can provide portfolio diversification advice and use investment funds appropriate to your risk tolerance level.
Hedge Risk With Fixed-Income Solutions
Another way to protect against market uncertainty is to invest in fixed-income solutions. Fixed-income solutions are often in the form of government and corporate bonds that provide a fixed rate of return as well as the return of your principal investment upon maturity.
Rome wasn’t built in a day and neither will your retirement portfolio. By investing steadily and systematically, your portfolio can weather the peaks and valleys of the market much better. Remember, you’re in it for the long-term benefits, not a lottery win (although that would be nice, wouldn’t it?) Dollar-cost-averaging helps you protect your retirement savings against extreme market fluctuations. There will be many market ups and downs as the economy continues its recovery. Speak to a financial advisor to learn how to protect your retirement savings from market forces beyond your control.
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