One of the most common themes you will hear when considering investments is the importance of a diversified portfolio.
What is a diversified portfolio?
Some investors are risky while others are conservative. Some invest in growth stocks while others invest in value stocks. But which is better? Whereas many clients (and advisors) have strong opinions about the best type of investments, most people will agree that a diversified portfolio is important.
A diversified portfolio is one in which you:
- Have multiple types of investments
- Have balanced investments in growth and value
How to build a diversified portfolio?
At Wealth Legacy Planners, we help our clients create a diverse portfolio using the "R-O-I acronym".
- Risk Tolerance
- Objectives
- Investments
Risk Tolerance - Are you more focused on growth or stability? These 5 Types of investments can be made according to your risk tolerance.
- Aggressive - (Most risk)
- Growth
- Growth with Income
- Moderate Growth
- Preservation - (Least risk)
Objectives - What are you trying to achieve?
- Personal Goals
- Retirement Goals
- Time Horizon (Length of Investment)
Investments - Managed funds (funds where investments are pooled together with other investors) according to your risk profile.
- Stocks - Ownership of shares of publicly traded companies
- Bonds - Ownership of debt usually issued by governments (local, state or federal) or publicly traded companies
- Alternatives - Any investment that is not a stock or bond. (Structured Notes, Precious Metals, Long/short funds, hedge funds, collectibles such as jewelry, cars, and art, cryptocurrency and NFTs)
- Real Estate - Home, business or investment properties.
Not sure where to start building your own diversified portfolio? Start with our free Wealth Legacy Plan Checklist.
Investments in securities do not offer a fix rate of return. Principal, yield and/or share price will fluctuate with changes in market conditions and, when sold or redeemed, you may receive more or less than originally invested. No system or financial planning strategy can guarantee future results.