In today’s volatile market, knowing how to diversify personal investments is more crucial than ever. Financial advisers and CEOs weigh in on strategies to mitigate risk effectively. Discover how to strategically allocate your assets and why incorporating tangible alternative assets can be a game-changer. This article compiles four expert insights that can help anyone navigate the complexities of investment diversification.
- Mitigate Risk via Strategic Asset Allocation
- Diversify Real Estate Investments
- Spread Risk Across Unique Assets
- Incorporate Tangible Alternative Assets
Mitigate Risk via Strategic Asset Allocation
As a fiduciary financial adviser, I approach diversification in personal investments through strategic asset allocation to mitigate risk in volatile markets. This strategy balances different asset classes based on individual financial goals, risk tolerance, and investment horizon.
Strategic asset allocation involves setting target allocations for various asset classes and periodically rebalancing the portfolio. This approach helps reduce risk through diversification while aiming to generate optimal returns for a given level of risk.
Key components include risk-tolerance assessment, time-horizon consideration, clear investment objectives, and careful asset-class selection.
Here’s an example allocation for a moderately risk-tolerant investor with a long-term horizon: 60% Stocks, 30% Bonds, 10% Cash, and Equivalents
This allocation provides growth potential through stocks while offering stability through bonds and cash.
Periodic rebalancing, typically annually or when allocations deviate significantly from targets, is crucial. For example, if stocks grow to 70% of the portfolio, I would sell some stocks and reinvest in bonds or cash to return to the target allocation.
While maintaining a long-term approach, minor tactical adjustments based on market conditions might be made. For instance, if bond yields are particularly low, I might slightly reduce bond allocation in favor of dividend-paying stocks.
During periods of high market volatility, this diversified approach helps mitigate risk in several ways:
- Uncorrelated assets often respond differently to market events, providing a cushion against overall portfolio volatility.
- Market swings create rebalancing opportunities to buy low and sell high.
- A predetermined strategy helps avoid impulsive decisions driven by market fear or greed.
By adhering to a well-thought-out strategic asset allocation plan and making disciplined adjustments, investors can navigate volatile markets more effectively while working toward their long-term financial goals. This approach provides a balance between growth potential and risk management, allowing for personalized strategies that align with individual financial objectives and risk tolerances.
Jeffrey Barnett
Financial Adviser, Fintegrity
Diversify Real Estate Investments
Diversification is vital to mitigating risk in any investment strategy, particularly in volatile markets. At TABHQ.com, we have transformed real estate investment by offering a diverse range of opportunities that go beyond traditional property ownership.
Rather than concentrating your capital into one or two properties, we allow you to spread your investments across various locations and property types, providing access to a broad portfolio with less exposure to individual market downturns. For example, you could invest in commercial properties in high-growth urban areas while holding fractional ownership in residential developments across different regions. This not only spreads risk but also allows you to capitalize on varying market cycles in each location.
At TAB, the barriers to entry are lower—there is no need for substantial upfront capital or the stress of managing multiple properties. You do not have to worry about tenants calling in the middle of the night or managing spiraling debt, which often comes with traditional buy-to-let investments. We have removed the headache of property management and maintenance while providing solid returns.
Our tech-driven platform enables automated asset management, allowing for transparency and control without the hassle. Diversification through TAB ensures a more balanced, resilient portfolio in property, making it an essential part of any long-term investment strategy. This modern approach to property investment gives you the benefits of real estate without the drawbacks, making it easier than ever to build a diversified and secure investment portfolio.
Duncan Kreeger
CEO, TAB
Spread Risk Across Unique Assets
In a volatile market, one of the best approaches to diversifying is to spread risk across unique assets and balance the temptation for rapid growth with stability, so you aren’t overly reliant on one area. Mixing stocks, bonds, and property can help reduce exposure in a single market, and having equity can also provide growth potential.
Diversifying geographically and spreading investments across the US and international markets is also a good move, reducing the risk of being tied to one country’s economic shifts. For example, allocating funds to developed markets and emerging economies can offer higher growth, but also comes with more risk. Within equities, I would ensure my investments are spread across different sectors, balancing cyclical industries that perform well in a growing economy with non-cyclical sectors that provide stability when markets slow down.
An example of sound asset allocation would involve a healthy portion of US large-cap stocks, like those found in S&P 500 index funds. It is also wise to include international stocks to capture potential in other markets, alongside investing in sector-specific ETFs for long-term growth in sectors such as tech. Holding government bonds is additionally useful to keep things stable, whilst also allowing a steady income. Keeping cash on hand to take advantage of these opportunities is equally as sensible. The exact split should depend on risk tolerance and the current cycle, but as always, it’s about maintaining a well-balanced portfolio.
Elliot Guinn
Managing Director, Samuel and Co Trading
Incorporate Tangible Alternative Assets
At De Pointe Research, we adopt a comprehensive, research-based approach to diversification, which has been central to our success in navigating volatile markets. Our investment philosophy reflects this approach, focusing on mitigating risk by diversifying across both traditional and alternative asset classes.
One key aspect of our strategy is a strong emphasis on tangible alternative assets, such as art and gold, which we recommend allocating around 10–20% of a portfolio towards (a percentage that J.P. Morgan also suggests). These assets are unique because they exhibit much lower volatility and little to no correlation with traditional financial markets, providing stability even when more conventional investments face turbulence. This “anchor” effect helps balance portfolios during market downturns while still offering significant upside potential.
Alternative investments not only provide stability but can also yield impressive returns. For example, the Knight Frank Luxury Investment Index reported that art was the top performer in terms of one-year capital gains, with 11% growth in 2023 and an impressive 29% in 2022. At De Pointe Research, we have introduced thousands of investors to businesses that operate in these alternative spaces. Not only do these investors benefit from the security of an uncorrelated asset class, but many have also enjoyed market-leading returns. We have researched companies with proven track records of providing consistent returns of over 20% per annum in the art market alone.
By integrating these alternatives into a broader investment portfolio, we aim to capture both the defensive and growth potential that many investors overlook. This diversification approach allows us to hedge against market volatility while seeking enhanced returns, reflecting our belief that true portfolio resilience lies in a balanced mix of traditional and alternative assets.
In summary, diversification in today’s volatile environment is not just about spreading risk, but also about identifying high-performing, uncorrelated asset classes that can provide both security and outsized returns. This approach should instill confidence in investors, knowing that their portfolios are resilient and well-balanced.
Harry Barker
Director, De Pointe Research
