For individuals with significant assets, building a portfolio that stands the test of time is essential. Market fluctuations, economic cycles and personal financial needs all require careful planning.
The key? Diversification.
A well-diversified portfolio balances risk and reward, ensuring long-term stability.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The importance of diversification
Diversification is about spreading your investments across different asset classes to reduce risk.
The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.
Instead of relying on a single stock or industry, diversification ensures downturns in one sector won’t jeopardize your financial future.
Asset allocation: The foundation of a balanced portfolio
A strong portfolio includes a mix of:
- Stocks. Growth potential but with higher volatility
- Bonds. Stability and predictable income
- Real estate. A hedge against inflation and a source of passive income
- Alternative investments. Private equity, commodities and hedge funds can offer uncorrelated returns
- Cash & cash equivalents. Liquidity for emergencies and opportunities
Although there are a lot of reasons why a person might choose to invest, the most common (including my own main purpose of investing) is to accumulate enough money to retire with comfort.
Many people also invest to have the confidence they’ll be able to maintain a certain standard of living and knock off some bucket list items. Life is not about money, yet it is a tool to make the things we want out of our lives a reality.
Managing risk: Strategies for stability
In addition to diversifying your investments by including a mix of different asset classes, you should strive to spread your money within those asset classes into different segments of the market. For example:
- Geographical diversification. Investing in different regions can mitigate risks tied to one country’s economy
- Industry diversification. Avoiding overconcentration in one sector
- Investment style diversification. Blending growth and value stocks for balance
Rebalancing your portfolio
Market changes can shift your asset allocation over time. Regular rebalancing ensures you stay on track with your goals.
A very common question I hear is, “Joe, how often should I be rebalancing or even reallocating my portfolio?” The answer to this question is not the same for everybody.
I’ll use myself as an example. I’m over a decade away from retirement. (If I’m being honest with myself, I’m probably closer to two decades away.) As such, I am rebalancing my portfolio once a year, maybe every nine months.
Looking for expert tips to grow and preserve your wealth? Sign up for Building Wealth, our free, twice-weekly newsletter.
Someone in their 20s might only rebalance every other year, while someone within a few years of retirement is likely rebalancing every six months or even more often than that.
An individual in retirement, especially if they are taking distributions from their portfolio, is probably rebalancing on a quarterly, if not monthly, basis.
The role of professional guidance
A financial adviser can help tailor a strategy specific to your goals, risk tolerance and timeline. The right plan will evolve with you, ensuring long-term financial security.
Of all the possible reasons that a financial adviser might choose to do what they do, I get the most satisfaction when I’m able to show someone a path that leads them to achieving their retirement goals and dreams — especially when they didn’t feel it was a possibility before we met. I don’t have to do what I do; I feel as though I get to!
Final thoughts
Are you confident your portfolio is positioned for long-term stability? If not, now is the perfect time to evaluate and adjust.
Whether you're planning for retirement, preserving wealth for the next generation or simply seeking peace of mind, diversification is the cornerstone of a successful investment strategy.
At Rooted Wealth Advisors, we understand no two investors are alike. If you’d like to build a portfolio that reflects your values, goals and vision for the future, you can reach out to us on our website.
Joseph (Joe) Mateja is an Investment Adviser with Rooted Wealth Advisors, Inc. The article above is not tax or legal advice. Consult with a qualified professional before implementing any strategies discussed.
Investing in securities involves risks, including the potential for loss of principal. There is no guarantee that any investment plan or strategy will be successful.
Related Content
- Tax Diversification: Smart Ways to Help Preserve Your Nest Egg
- Why Private Markets Are a Diversification Superpower
- How to Use DSTs and 1031 Exchanges for Diversification
-
Stocks Slide to Start September: Stock Market TodaySeasonal trends suggest tough times for the stock market as we round into the end of the third quarter.
-
Here's What You'd Have If You Invested $1,000 Into Sherwin-Williams 20 Years AgoSherwin-Williams stock has clobbered the broader market by a wide margin for a long time.
-
Stocks Slide to Start September: Stock Market Today
Seasonal trends suggest tough times for the stock market as we round into the end of the third quarter.
-
If You'd Put $1,000 Into Sherwin-Williams Stock 20 Years Ago, Here's What You'd Have Today
Sherwin-Williams stock has clobbered the broader market by a wide margin for a long time.
-
Where is the Foreign Dividend Boom Headed?It's been a golden six months for foreign dividend stocks, but can any be relied on for predictable income going forward? Here are some options.
-
The Unsung Hero of Aisle 5: A Tale of Forgotten Change and Compassion at the SupermarketThis supermarket manager went above and beyond to help when a child forgot her change at the checkout counter. You might be surprised at some of the complications that supermarkets face when it comes to customers' forgotten change.
-
Train, Integrate, Retain: A Strategic Playbook for Adviser OnboardingsBuild a thriving practice by training new advisers with clear goals, structured processes and consistent mentorship for strong team growth.
-
Why is My First Medicare Bill So High?Your first Medicare bill may be higher than expected for several reasons. If your premiums aren't taken out of your Social Security benefit, the bill can be huge.
-
11 Unforgettable Road Trips to Take in RetirementMore than a travel trend, the road trip is a quintessential American tradition, with millions of us taking them each year. Here's a guide to helping you choose your next adventure.
-
I'm a Financial Professional: Here Are Four Ways You Can Use Debt to Build WealthUsing debt strategically, such as for homeownership, education and more, can lead to greater financial stability and growth.
