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Tuesday, December 9, 2014

Achieving Diversity in Your Investment Portfolio

Achieving Diversity in Your Investment Portfolio
By Richard F. O’Boyle, Jr., MBA, LUTCF

As you approach retirement, and even during retirement, you want to diversify your portfolio to protect what you’ve earned and to grow more. Getting to this point wasn’t easy so you will need to exercise caution. But you likely want to achieve real growth in the next few years, to maximize your enjoyment during retirement, and to leave something behind for the ones you love. I’ve laid out some of the best ways you can do both. By engaging in some safe and secure allocations, you’ll protect your funds from the whims of time. By taking on some risk, you’ll stand a greater chance of adding to the wealth you’ve already accumulated.

1)    Bonds. Bonds are a relatively stable form of investment. In effect, when you buy a bond, you are lending money to an entity (Federal government, state, municipality or corporation) and will recoup the loan plus interest over the duration of the bond’s term. Federal government bonds have never defaulted in the history of the United States. What’s more, your bond money will generally grow in value faster than the present rate of inflation. Therefore, you won’t lose buying power, while increasing your wealth slightly. Unfortunately, there is a payoff for the security that bonds provide. Just as there is little risk or loss, there is little hope of large gains on this kind of investment. As you age, you’ll want to allocate more and more of your portfolio in secure bonds, but you also want to leave yourself a little wiggle room to grow. This is where the other kinds of investment come in.

2)    Stocks/ETFs/Mutual Funds. If you have invested at all, you likely know about these. These are the riskier cousin to bonds. Buying stocks is buying a little share in a company – which allows you to benefit from the growth of that company. By spreading out your investment across many stocks, through index mutual funds, you will follow the historical upward trajectory of the market overall. Of course, sometimes the market drops and, when it does, your investment will decline with it. But generally, the market grows over the long term. If you expect to have many years or even decades ahead of you, a significant allocation of stocks may be appropriate. You may even be comfortable with more than average. Wisdom typically dictates that you have your age reserved in bonds (a 45-year-old will have 45% of her portfolio in bonds). The remaining amount will be in stocks, or spread out in other kinds of investments.

3)    Binaries, Real Estate, and Alternatives. Spread Betting is a quick way to see return on your investment. It is the quickest way, actually, though caution is urged because you can see a loss just as easily. Other common investment forms like Real Estate and investment in specific business enterprises are less risk-prone, but do not offer the same speed of return as spread bets. Some people feel comfortable investing in gold and other static commodities. While it is impossible to anticipate how something like gold will change in value, its inherent worth is comforting to those who don’t have the same understanding of the stock world.


A diversified portfolio, properly stocked, will carry you through your retirement in comfort and security. Talk to your financial professional about the above options, and about how to best implement your retirement portfolio for your personal needs.

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