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.
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The importance of diversification
Diversification is about spreading your investments across different asset classes to reduce risk.
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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.
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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.
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