Some Tips for Portfolio Diversification

 

Diversification is a form of risk management strategy, and it is something that all investors should always keep in mind. 

There are various types of investments that are held in a diversified portfolio and that will help the investor achieve higher long-term yields. 

Equities/Stocks 

Adding some stable, high-dividend paying equities to come up with a balanced portfolio is turning into an effective new model for late-stage investing. This can also be suitable for investors who are nearing the retirement age. 

There are plenty of huge, established companies in the S&P 500, and many of these companies pay yields that are higher than the current inflation rates. They also provide the chance for the investor to participate in corporate profit growth. 

Of course, investing in stocks and equities also comes with a lot of risks when compared to bonds or fixed-income securities. The trick to mitigate this risk is to diversify across sectors and keep overall equity exposure. 

Real Estates

A property can offering rich rent income that can improve your quality of life during your later years. But instead of becoming a landlord, you can invest in real estate investment trusts (REITs). 

These are high-yielding securities that provide a good amount of liquidity, trade similarly to stocks, and sport the characteristics of a distinct asset class from bonds and equities. 

Investing in REITs are a good way to diversify a portfolio to protect it from market risks in other assets such as fixed-income securities and stocks.

Bonds with High Yields 

High yield bonds, which are also called junk bonds, are another potential bet. While it is true that these debt instruments that offer above-market yields are very hard to invest in with confidence, you can allocate a portion of your portfolio to high yield bonds by choosing a bond fund that has consistent operating results. 

Many high yield bond funds will be closed ended. And that means the price may trade higher than the net asset value (NAV) of the fund. 

Search for a fund with little to no premium over the net asset value for an extra margin of safety when investing. 

Inflation-Protected Securities 

You can also consider investing in Treasury Inflation-Protection Securities, or TIPS. These assets are a great way to protect against the challenges that inflation may give you in the future. 

These assets carry modest coupon rate, which is typically between 1% and 2.5%. However, the real benefit is that the price will be adjusted systematically to fight and secure it from inflation. 

It is also very important to remember that you can best hold TIPS in tax-advantaged accounts, since the inflation adjustments are done through adding to the principal amount. 

Emerging Market Debt Securities 

Similar to high yield bonds, emerging market bonds are best invested through a mutual fund and exchange-traded fund (ETF). 

Individual pieces can be illiquid and you may have to research them carefully first. On the flipside, the yields have historically been higher than advanced-economy debt, offering a nice diversification that helps ward off risks specific to the country. 

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