Four Power Tips for Making Smart Investments

By: ispeculatornew
Date posted: 04.20.2016 (3:44 pm) | Write a Comment  (0 Comments)

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Investors are in the business of using money to make more money. Investors are not concerned with capital preservation (of course, they don’t want to lose money); rather, investors are more interested in capital multiplication. However, to double, triple, quadruple, or grow your trading capital, you’ll need to step out of the comfort zone of making conservative investments to the not-so-comfortable zone of making speculative investments.

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Many people are scared of making speculative investments because they are afraid of taking on risks. However, you can still take on speculative investments without fears if you have diversified the investments in your portfolio. Diversification simply means that you should not put all of your investments eggs in the same basket. This article seeks to explore four simple things every investor could do in order to have a diversified but balanced portfolio.

Variety is the spice of life

To start with, a diversified investment portfolio is a portfolio that has different kinds of investments. If you put all of your money in stocks and the stock market crashes; you’ll lose all of your investment – many people had that experience during the 2008 global financial crisis. Now, gold is the best performing commodity in the market. It has 17% gains in the YTD and many investors are putting all of their money into gold – it is highly risky because they could lose everything if gold crashes.

A diversified portfolio should have a mix of stocks, bonds, real estate, speculative plays, international investments, and cash. In broad terms, you should have a mix of conservative and speculative investments.

Conservative investments include mutual funds, stocks of blue-chip companies, and precious metals among others. Binary options is a good way to start investing in speculative plays that could deliver exponential returns on investments – you should look for a recommended binary options broker. You might also want to learn more about futures and options as other type of speculative plays that promises massive returns.

Asset allocation should take proper planning

In diversifying your investments, you should also figure out a way to determine how much money you should put in your different investments. Asset allocation is the concept that ensures that your portfolio is weighed and balanced with different kind of investments. You’ll find many rules about asset allocation – some experts will suggest that you subtract your age from 100 and put the remaining percentage in stocks and bonds.

One of the commonest asset allocation rules you’ll find in the market will suggest that you invest between 25% and 50% of your money in stocks, 5% in bonds, 10% in REITSs, 10% in real estate, and the rest in other speculative plays.

However, I think asset allocation should basically be between allocating money between speculative investments and conservative investments.  I suggest that that you should subtract your age from 100 – put your age in conservative assets and put the rest in speculative assets. You can also check Finpari Broker Review to get started on speculative trades and investments

Diversify within the same category

Smart investors diversify their investments between different assets class and they go further to diversify the investment within the same asset class. It is good to diversify between stocks, bonds, binary options, precious metals, mutual funds, and real estate among others. However, you should also endeavor to diversify within the same asset.

For instance, while buying stocks, you should buy a mix of tech stocks, bluechips, financials, industrials, and healthcares stocks among others – of course, you should understand the business of the underlying company before you buy the stock. However, if you don’t have deep pockets, diversifying within the same category could cost you a lot of money in the form of transaction costs & fees.

However, you might want to consider “index” funds, EFTS, and mutual funds as a means to diversify within an asset class. Nonetheless, it is important that you conduct extensive due diligence, examine the past performances of a fund, and gather insight into its future performances before you put your money into any fund or before you commit your money to any money manager.

Balance risks with expected returns

The main reason you are being advised to diversify your investments is that diversification spreads out your exposure and it reduces your risk in any single market sector. However, diversification should be a tool for reducing risk but not a tool for locking yourself in an investment prison. There’s no point in putting all of your money in conservative investments without making speculative plays.

One of the mistakes that investors make is that they forget that the risks and rewards are blood brothers – low risk investments yield low rewards, medium-risk investments bring medium rewards, and high-risk investments often deliver high rewards. When diversifying your portfolio, pay attention to how much risk you are willing to take and buy up investment vehicles accordingly.

 

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