Yahoo Finance 67% of Americans Are Most Invested in Retirement and Stocks — Why It’s Important To Diversify
Many experts agree that diversification is a key component of a well-balanced and well-rounded portfolio as it can help you buffer losses and navigate different economic landscapes. In other words, many experts recommend not putting all your investment eggs in the same basket.
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Yet, a new GOBankingRates survey found that 67% of Americans have most of their funds in retirement savings (37%) and in stocks (30%).
Interestingly, only 4% say they are invested in bonds. As for some other categories, the representation is fairly low as well. For instance, just 7% said they hold certificates of deposit (CDs), and another 7% have real estate investments, while 7% have money in mutual funds, 5% have crypto investments and 3% have commodities.
“When it comes to investing, the wisdom of the ancient Greeks rings true: Everything in moderation. It’s a timeless principle that applies just as much to our financial decisions,” said Brian Chevalier-Jordan, chief marketing officer, National Business Capital. “Putting all your money into a single investment is a bit like putting all your eggs in one basket; and, as we all know, that can be risky business.”
To reduce that risk and boost your chances of making a profit, he said you should diversify your investments.
What Does Diversification Mean?
While diversity is always important, it should not be limited to diversity within a kind of investment, according to Bobbi Rebell, CFP, founder of Financial Wellness Strategies and author of “Launching Financial Grownups: Live Your Richest Life by Helping Your (Almost) Adult Kids Be Everyday Money Smart.”
We need to be careful not to mistakenly assume our investments are truly diversified if they are one kind of investment, such as equities, she said.
“For example, we may think that because we have invested in a mutual fund or an ETF [exchange-traded fund] that mirrors a large U.S. equity index that our investments are truly diversified,” Rebell said. “In that case they are diversified in terms of different domestic stocks but not in terms of the kind of investment.”
Instead, to be truly diversified, investors should consider including other kinds of investments such as real estate, commodities, CDs, money market funds and maybe even non-liquid assets like art and collectibles, she added.
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Another factor to consider is that you can rebalance your portfolio from time to time to reflect both the expected returns and your changing needs as you go through life stages and as interest rates and other economic realities change.
“For example, it may make sense with higher interest rates to consider moving some assets into a vehicle like a CD that pays a guaranteed return if you don’t need to access the money for the duration of the CD,” she said, adding that this same move would not have made sense even a couple of years ago when interest rates and returns on fixed income like bonds and CDs were much lower.
No One-Size-Fits-All Strategy
When it comes to constructing your investment portfolio, it’s essential to remember that there’s no one-size-fits-all approach, said Akeiva Ellis, CFP, expert contributor for Annuity.org and a CFP ambassador.
Indeed, Ellis explained that your asset allocation should be tailored to align with your investing objectives, your comfort level with risk and your capacity for taking on risk.
“Additionally, the type of account in which you choose to invest — whether it’s a retirement account or a non-retirement account — will be influenced by these same factors,” Ellis said. “For instance, if you’re a young professional with a long-term perspective, it can be entirely appropriate to have a significant portion of your investments within retirement accounts.
“On the flip side, individuals pursuing financial independence and early retirement (FIRE) might lean toward directing more of their resources into taxable investments, allowing them to access their funds before traditional retirement age. The key is to ensure your investment strategy aligns with your specific financial circumstances and aspirations.”
Ellis added that there’s no strict requirement to invest in every single asset class and investment categories. Instead, what truly matters is maintaining diversification, which can be achieved through various means.
“Even within one asset class, such as stocks, diversification remains a cornerstone of sound investing,” Ellis said. “For instance, when investing in stocks, it’s not solely about having ownership in multiple companies; it’s about owning companies that span different geographic regions, industries and sizes.”
This approach helps mitigate risk and provides a balanced approach to your investments, ensuring that your financial future is built on solid footing.
“The key is not necessarily how many categories you invest in,” Ellis said, “but how well you diversify within them.”
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This article originally appeared on GOBankingRates.com: 67% of Americans Are Most Invested in Retirement and Stocks — Why It’s Important To Diversify
