Balanced Investment Strategy Guide
Building up a well balanced and diversified portfolio is a must for every investor. While the performance of the investments is of primary importance, a balanced investment strategy provides a safety net. In today’s volatile economy, every other month there is a crisis in one or the other sector. Tech stocks went down in the dotcom crash, the subprime mortgage crisis brings prices down in the real estate sector. Private equity funds are worried about impending changes to tax regulations on carried interest earnings for fund managers.
Such volatility means that a large investment into a single area, while proving temporarily lucrative, would be extremely risky. If however, your have a spread out portfolio, with investments in many sectors including real estate, gold, treasury bonds and forex markets, you are able to weather out storms limited to specific investments. A loss from any one area can be recouped with gains from the other areas, keeping the value of your investment on a steadily rising curve.
A balanced portfolio should include investments which are not affected by the periodic spikes in the market. Bonds, trusts funds, real estate and gold investments may not provide the kind of returns which the stock market provides, but, put together, they do assure you of minimum guaranteed returns. Once you have a strong and diversified base, with a secured principal and minimum guaranteed returns, whatever the state of the market, you can build on that with high performing stock investments. Stock investment strategies, like value and growth investments, are described in detail in other articles.
Another way to do this is to separate the amounts allocated to these two areas. Keep a well diversified and balanced portfolio, and a sum set aside for the stock markets. The other investments, more stable but with lower returns, can be enhanced with additional contributions from the high returns of the stock market investments. The best way to achieve this is to set aside a percentage of all stock profits for inclusion into the diversified portfolio investments. In this way, you assure yourself of a safe and growing principal ensconced in a diversified portfolio, and use your stock investment success to speed up the growth.