We often talk about a ‘balanced portfolio’ in investing. It’s all about diversifying your money so that it’s not all at risk in one place. In other words, you never put all your eggs in one basket.
Let’s say, for example, you put all your money into the tech sector. If the tech bubble bursts and crashes, it will take all your money with it. If, however, you also put some money into manufacturing stocks, that should balance out your losses. By investing outside the stock market, you’ll insulate yourself even further. Let’s take a look at some of the ways you can build a balanced, safe portfolio.
- Property – Real estate is always a valued investment market. Like stock exchange, it goes through various fluctuations. However, it’s not tied directly to the stock market so one won’t directly impact the other. Over time, property prices have a tendency to rise significantly. With a portion of your money safely in the housing market, you can take advantage of this rise. Start looking at the real estate listings in your area. Choose a property and location that is most likely to rise in value.
- Blue chip stocks – When we say ‘blue chip stocks’, we’re referring to the giants of industry. We’re talking about the most reliable and profitable companies on the planet. They include the likes of Apple, Disney, Google, etc. These are companies that have the ability to ride out even the toughest economic storms. They’ll keep functioning and creating profit no matter what. In general, these stocks rise at an average of 7% year-on-year. That’s a healthy growth for your portfolio.
- Gold – Investors use gold as a ‘safe haven’. In other words, it has a tendency to do well even when the stock market crashes. A clear example is in the wake of the 9/11 attacks. The stock market tumbled, and investors flocked to gold. The value of gold soared more than 25%. A similar thing happened when the housing bubble burst in 2008. Gold acts as a hedge against uncertain economic events.
- Bonds – Bonds are perhaps the safest and most stable investment available. When you buy bonds (also known as ‘treasury bonds’) you are investing in the government. You’re lending money to the government who pay you interest for doing so. As you can imagine, the government is always good for the money. They provide a stable return on your investment. It won’t make you rich, but it’s a good way to balance your portfolio.
- Personal project – The four aspects above make up what investors call a ‘permanent portfolio’. It should comprise only money that you can’t afford to lose. However, investors also suggest using some money you can afford to lose on a personal project. That might be starting a business or investing in something you think will be lucrative in the future.
These five investments create a balanced portfolio. If one aspect begins to lose money, the others will easily balance it out. Simple!