The balanced portfolio is about spreading risks and investing in a variety of industries. Different markets and assets all respond differently to economic performance, and a balanced portfolio aims to make the most of every situation.
How do you access that flexibility and responsiveness in your own investments? These are the assets you need to own to take full advantage of a balanced portfolio.
Gold and Silver
Gold and silver make the ultimate hedge. A balanced portfolio needs an asset that won’t be rocked by poor economic performance or a market correction. It helps that precious metals are also resistant to inflation and become highly desirable when extremely low interest rates push treasury bonds toward worthlessness. Anywhere from 5 to 20% of your portfolio can be put into bullion.
But which one should you buy? It depends how much you have to invest. As a rule of thumb, if you’re making an investment of under $2,000 it makes sense to buy 100% silver. That’s because one ounce of gold is around $1,500, and you can save on premiums by purchasing more ounces at a time.
Check out the spot price of silver today and make sure you include precious metals in your portfolio. Even if you’re interested in gold, there’s a case to be made that silver is better insurance today. That’s because the spot price of silver has more upside to it. Silver is the more undervalued asset, and that means there’s more profit to be made. Since the silver market is so much smaller, it’s much more responsive to market movement.
Precious metals give you a strong foundation. Stocks are riskier. During periods of economic growth, stocks will be your best earners, but the world economy doesn’t look like it has much more growth left in it before the next recession.
About 50% of your portfolio could be in stocks, but that number should fluctuate depending on your risk tolerance. When you’re young and have more time, it could be as high as 80% to maximize your growth potential.
Even within the stock market, there are more conservative shares you can buy. Dividend stocks such as bank stocks, utilities, and core brands (think companies like Disney and Coca-Cola) that are resilient to recessions.
Bonds have not been great in the last decade. Eleven years of artificially deflated interest rates thanks to central banks trying to keep the wheels on an anemic global recovery. The result has been very low bond yields, while the stock market has done extremely well.
Bonds are seen as very safe investments, especially government bonds, but the yields reflect the low risk.
Fixed Income Investments
Beyond bonds, other fixed income investments like ETFs and money market funds deliver a return on a fixed schedule. You pay a certain amount in exchange for fixed interest payments, and your principal back at maturity – just like a bond, but various other financial products that open up new opportunities.
Real estate has arguably become one of the most important assets of the 21st century. As global capital has sought real estate deals around the world, it’s transformed cities. There are many ways to invest in real estate, too, through condos, REITs, income properties, and more. It’s not just about buying houses.
A balanced portfolio has an investment in just about everything. Spread your interests around for optimal performance.