Asset diversification is an investment strategy designed to help investors minimize exposure to market volatility while attempting to maximize opportunities for high returns over the long term. While diversifying assets does not guarantee any investment objective will be met, spreading out investable dollars over a diverse mix of stocks, bonds, cash and other assets could better prepare investors to react to and ride out the highs and lows of market swings without suffering permanent capital loss.
Historically, no asset class consistently outperforms another and few have yielded consistently strong returns year-over-year. In addition, without the benefit of a crystal ball to see into the future and the power to control all the factors that can influence investment performance, investors may not want to risk putting all their eggs into one basket. Instead, it is essential to consider the risks and rewards of each investment against your personal level of risk tolerance and time horizon, which your age and your unique short-and long-term financial goals may reflect.
To get started diversifying your portfolio, consider meeting with professional financial advisors who can help you identify how much risk you are willing and able to take based on your budget, time horizon and retirement goals. For example, an investor in their early 30s may not have substantial savings to invest. However, because their plan to retire is decades away, they may be able to tolerate more market volatility and risk more potential losses than another investor in their early 60s who is planning to retire within the next few years. Therefore, the thirty-something’s 401(k) retirement plan portfolio may be more heavily invested in high-risk, high-reward stocks, whereas the sixty-something may have more money invested in the relative safety of bonds and even cash.
A basic rule of investing is that the effects of volatility can be diminished the longer an individual holds an investment. With this in mind, it is crucial to combine asset diversification with a long-term investment strategy you can stick to and ride out market upswings and downturns. While asset allocation can be adjusted in the short term to react to market volatility and an investor’s immediate needs, staying invested over the long term could translate to more consistent growth.
About the Author: Olga Ismail is the head of Retirement Plan Consulting and a financial advisor with Provenance Wealth Advisors (PWA), an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs and a registered representative with PWA Securities, LLC. She can be reached at the firm’s Fort Lauderdale, Fla., office at (954) 712-8888 or info@provwealth.com.
Provenance Wealth Advisors (PWA), 200 E. Las Olas Blvd., 19th Floor, Ft. Lauderdale, FL 33301 (954) 712-8888.
Olga Ismail is a registered representative of and offers securities through PWA Securities, LLC, Member FINRA/SIPC.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
Any opinions are those of the advisors of PWA and not necessarily those of PWA Securities, LLC. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of PWAS, we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Prior to making any investment decision, please consult with your financial advisor about your individual situation.
Investing involves risk, investors may incur a profit or loss regardless of the strategy or strategies employed. Diversification and asset allocation do not ensure a profit or protect against a loss. Future investment performance cannot be guaranteed.
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Posted on February 4, 2025