Taking Cues From Seasoned Investors: The Importance Of A Diverse Portfolio

To keep up with the changing times, individuals and companies alike felt the heat to fully move into a more digital landscape after years of traditional investing.

However, diversification eluded some investors although it’s a necessary tactic employed by seasoned investors that can positively impact both high-net-worth individuals and the portfolios of all clients.

As a CEO of an investing platform and financial advisor, my advice for all types of investors is simple, diversify your portfolios!

Consider using alternative strategies to fight inflation.

For the most part, I've found that the situation is not like the old days, when diversification was implemented through investing in a balanced portfolio. This is because things have changed, and diversification now carries a deeper meaning. So, you may also want to consider investing in other alternative assets to hedge against inflation.

I've found it all eventually boils down to diversifying within the industries themselves. I believe this is because correlation is the key to diversification.

Look for inversely correlated and negatively correlated stocks.

Check that whatever you’re investing in is inversely correlated to make sure that when asset classes get affected, your whole portfolio doesn’t. Also, consider investing in negatively correlated stocks and make sure to account for inflation in your investment strategy.

Use diversification while navigating the market during inflation.

During times of downward economic performance, like our post-pandemic era, diversification may need to take a different approach, which includes focusing on different types of stocks. Hence, diversification between stocks and bonds likely won’t be sufficient.

Inflation affects business leaders directly, specifically in their diversified portfolios, meaning holding bonds can entail a continued decrease in their value while inflation keeps rising. I've found that the best solution is to replace them with other types of inflation-linked bonds; however, these bonds also come with risks.

Best practices that should investors know about

Pivoting is always important regardless of the market situation as well as redistributing asset classes according to the circumstances of the market, especially during hard times.

What are the risks?

Although professionals and high-net-worth investors often have enough liquidity to invest, if their portfolios are not well-diversified and correlated enough to take into consideration certain economic factors such as inflation and average wage, they can be in a riskier position.

As of today, I think diversification has a totally new meaning post-pandemic. Note that professionals and business leaders cannot reinvest money in this economic situation like before or in their own businesses to grow it. Instead, many are looking for alternative investments that generate passive monthly income.

In my opinion, professional investors looking for potential investments should focus on the economic cycle and indicators such as inflation, interest rate and the unemployment rate. Making decisions linked to inflation can better protect them from the downside of the market and keep their portfolios diversified by focusing on generating income.

The good news is that there’s always light at the end of the tunnel, especially in the stock market.