Tips for Investing with Diversification and Patience

Asset Allocation and Diversification: 2 Keys to a Winning Investment Strategy   When it comes to investing, diversification is often a term thrown around. But what does it really mean, and why is it so crucial? I see this often get mixed up with asset allocation. Both terms are key to understanding in the context of a written investment plan. Asset allocation is like having a well-balanced football team. Just like you wouldn't want your team to rely solely on a team made of 20 quarterbacks. A quarterback is a necessity in their role, but would not do well on the offense or defensive line. To put it simply to complete asset allocation correctly you need a quarterback, a wide receiver, an offensive line, a defense, etc. etc. You need every position filled. In investment terms this means having allocations to large cap, mid cap, small cap, international developed and emerging market categories (just as examples). And then to go further having different styles in each (think throw vs. run) as growth is to value (in the world of stocks). There are other categories as well, but keeping it simple for now just with those 5. This is a brief overview of asset allocation, and once that is established, then diversification comes into play. Here's the key: in each of these "asset allocation" positions, you want backup players. Diversification means you have a second string ready to step in if one of your investments takes a hit. If your quarterback (one of your stocks) goes down, you don't want a wide receiver (another stock) taking that position. You want a second string quarterback (another stock in that category) ready to go to fulfill that position. So, how many companies should you have in your investment lineup for effective diversification (inside each asset allocation category)? Studies have shown that having at least 25 companies in your portfolio reduces 80% of the risk. To reduce 90% of the risk, aim for around 100 stocks. Beyond that, adding more companies does not significantly reduce risk. Having 25 companies might carry a bit more risk, but it also opens the door to higher returns if you choose your investments wisely. It's all about finding the right balance that suits your investment goals. These strategies do not lead to the best returns. But what they do is lead to the highest returns associated with the least amount of risk attached. This is a balancing act and an important consideration if your money is truly being managed to support your life by design and a tool for you (not a master that will tell you to skip that trip if the stock market suddenly dips). So, assemble your team wisely and aim for that winning strategy by following time tested principles. #investmentstrategy #financialplanning #assestallocation

Staying invested requires discipline, especially when it feels the worst. Staying the course and not acting with emotion are the foundation of having the best long-term outcomes. In fact, this conversation conceptually is agreed upon, but actions during times of turmoil prove it to be much more challenging, time after time. Diversification and time are some of an investor’s most powerful allies when it comes to growing wealth over the long run. Markets can always have a bad day, week, month, or even year. But history suggests investors are less likely to suffer losses over longer periods, especially when utilizing diversification. In fact, an allocation balanced between U.S. stocks and bonds* hasn’t suffered a negative return over any five-year rolling period (or longer) in the past 70 years! Past performance doesn’t promise future results, but that’s a compelling track record. Every investor’s portfolio will look different depending on their unique set of financial goals, ability and willingness to take risk, and time horizon. Assets such as stocks and bonds are merely vehicles to get you to where you want to go on your financial journey. The roadmap is your financial plan. *Portfolio allocation refers to 50% U.S. stocks and 50% U.S. bonds. U.S. stocks represent the S&P 500 Shiller Composite. U.S. bonds represent an average of Strategas/Ibbotson government and corporate bonds for periods from 1950 to 2017, then an average of Bloomberg’s U.S. Treasury Index and Bloomberg’s U.S. Aggregate Bond Index from 2017 to 2022.

When it comes to investing, think of it as nurturing a garden. Just as the most vibrant flowers take time to bloom, your financial efforts will flourish with patience and care. Playing the long game isn't just wise; it's a strategy embraced by the savviest investors out there. They know that while markets may fluctuate, a well-tended investment can grow beyond expectations. So, take a step back, breathe, and focus on the horizon. Your future self will thank you for the foresight and steady hand in guiding your financial journey. As a real estate investor, I’m laying the groundwork for my financial future by carefully selecting properties in emerging markets with strong growth potential. I focus on diversifying my portfolio across different types of properties, from residential to commercial and ALFs, ensuring a balance between cash flow and capital appreciation. I’m also constantly educating myself on market trends and staying connected with a network of professionals who can provide valuable insights. By doing so, I’m not just investing in properties; I’m investing in communities and building a legacy that can withstand economic cycles and provide long-term stability. How about you, how are you laying the groundwork today for your financial future?