Precious Metals Portfolio Diversification
Have you ever wondered why investment institutions often sell so many different types of products, that are unrelated to one another?
By selling multiple types of products, often both sides of the buying and selling market, or as it is known in the investment world “Diversification” of its product line. The institution can reduce the risk of losing money on any given day, potentially improve their revenue streams whether as an investor you are buying or selling. Financial institutions, determine which understand that when it is sunny, it is easier to sell sunglasses but not umbrellas.
Diversification is a tactic that reduces risk by distributing investments among multiple asset classes, industries and other categories. It enhances performance by investing in various areas where each reacts differently to the same event. If you diversify your portfolio, your investment performance should be less volatile because losses from some investments are offset by gains in others. However it is NOT necessary the day and age to make a one stop shop at your nearest investment institution, to diversify your portfolio. In fact it is the exact opposite. If shopping to truly diversify your portfolio locate an expert that knows their market best. If that means that you end up having a team of experts, it is more likely that you as an investor stand a better chance at true diversification for your portfolio.
When constructing your RRSP, TFSA, RESP, LIRA or any other type of registered account portfolio, you should first understand your investment goals and risk acceptance.
• Is this for long-term retirement planning or will the investments be used in the next couple of years?
• How much downside risk can you tolerate? 10%? 20%?
• Do you have to understand the risk among different investments, then you could decide what to include into your portfolio.
Mutual funds can be great financial tools to achieve this diversification because each fund would own numerous stocks, bonds and so on. However, just because you own several funds does not mean you have a well-diversified portfolio. In fact as is often the case, probably 90% of the time, when asked at a Guildhall seminar less than 1% of any audience actually knows what is in their mutual fund portfolios.
If all the funds you have are holding similar investments, then it would defeat the purpose. When designing a portfolio, it is important to look at their correlation. In order to achieve superior diversification, you should consider diversifying across the board.
Invest in different types of paper assets as well as other areas such as physical precious metals. Physical precious metals in the form of gold and silver are tangible and can be held in your hand. They represent true diversification (over the past 40 years no other asset class has been as negatively correlated to stocks bonds and cash) and the more uncorrelated your investments are, the better.
Diversification can assist investors to manage risk and reduce the volatility of a portfolio. Remember though, regardless of how diversified your portfolio is, risk can never be totally eliminated. You can reduce risk associated with an individual portfolio, but general market risks can impact most investments. The critical point is to find your right balance between risk and return. This will ensure you could reach your financial goals while still being able to get a good night sleep.
Call us now to talk about adding physical gold and silver to your portfolio today.
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Darren V. Long is Senior Analyst with Guildhall Wealth Management Inc. Darren is a speaker, writer and financial commentator on gold, silver and the economy. He can be heard weekly on “The Real Money Show” on 640 am radio in Toronto discussing all facets of the precious metals markets. Listen to replays of all shows on omny.fm— 1.866.274.9570— www.guildhallwealth.com and www.guildhalldepository.com or email at: email@example.com