Start young enough and basically any investment strategy can shield you from most risk over time. Still, it’s important to do your best to minimize your exposure to various risks throughout your life.
The market presents a lot of temptation, and there are many gurus on TV and in the blogosphere promising strategies that will payout for life. Some of these are great, others not so much, but you can feel free to try out various strategies with less anxiety if you take the steps to shore yourself up from risk to begin with. Here are some thoughts on which investment vehicles offer good protection.
Non Correlating Assets
A non correlating asset essentially means “not stock”. There are some recommendations out there recommending amateur investors hold around a dozen or so stocks and call it a day. Except, if you had followed that philosophy and the crash occurred in 2007, you’d be broke.
Investors following this path look for currencies, like the Iraqi dinar vs. US dollar, where the exchange rate is favorable and the prospects are high for the long term. Currency investment begins with a good grasp of world politics, so look for the countries that offer stability and good long-term prospects.
Other non-correlating assets include real estate and commodities, which both tend to be insulated from crashes. Real estate generally tends to increase in price over time, even with crashes that occur. Commodities can be volatile too, but offer greater dependability when markets are turbulent (everyone needs to eat or get gas).
Along the lines of non-correlating assets is a basic portfolio of diversified holdings. Diversification can be as simple as a high-interest savings account you invest in alongside your stocks, bonds, and non-correlating asset purchases. It could be a CD or mutual fund investment, or investing in a business or franchise.
Diversification simply means spreading money out among many industries or investment strategies. You don’t need to certify yourself as an expert in everything. Keep things simple. Buy bonds or invest in CDs since you’re looking to hold for the long term. Compounding interest is your best friend when practicing portfolio diversification.
Dividend-producing stocks are a must-have for a solid investment strategy with lifetime payouts. Find stable companies offering a strong return, with good cash flow behind them, and you’ll have an income producer for life.
Coupled with compounding interest and reinvestment strategies, dividend producing stocks are one of the most powerful vessels for savings that most investors have access to. They also aren’t terribly hard to invest in either. Simply look around for the major brands people are discussing. Chances are, those brands offer dividends to stockholders. Shop around for a low enough price and buy when the time is right.
Bonds and Other Considerations
Bonds are interest-bearing securities, and they are like a guaranteed payment on a loan. They are typically used as a means for cities to expand (creating bonds to cover costs of a new school building or infrastructure spending). Buying a bond is like a note in a loan, and you’re guaranteed a payout until your share of that massive loan is paid back.
Another newer option is peer-to-peer lending, which uses smaller amounts of money for a reduced risk. You lend directly to individuals looking to accomplish their goals, so there is a sense of civic duty attached to your investments as well.