By Bryan Trugman, CFPⓇ
When it comes to investing, everyone seems to have an opinion—from financial experts on TV to the latest tips from your neighbor. But these ideas are no substitute for a well-defined investment strategy that aligns with your goals, a strategy that holds steady regardless of what surprises the market throws at you.
At Attitude Financial Advisors, we advocate for a diversified portfolio that includes a mix of stocks, bonds, and other investments, with further diversification within each category. Crafting and maintaining a strategic asset allocation is crucial for long-term investment success. To understand the importance of diversification in your portfolio, read our following thoughts to assess your level of risk and how to intentionally optimize your financial picture.
Minimize Risk
One primary role of diversification is to minimize risk in the stock market. This doesn’t just mean diversifying between growth stocks and value stocks. True diversification requires incorporating a mix of different types of investments—think stocks, bonds, international investments, real estate, etc.
There are varying factors that govern the amount of risk you’re willing to accept. If you are banking on your money being there for you on a certain date, it may align better with your financial plan to utilize a more conservative mix of investment assets with a history of lower volatility. Having a portfolio that is diversified with lower risk will give you peace of mind.
As we mix and match asset classes and strategies, risk-capacity decisions need to be made no matter the timeline length. By optimizing the way your portfolio is constructed, we can help minimize risk.
Increase Your Potential for Added Gains
Learning a bit of stock market history often puts many at ease when deciding to move money from a savings account into the stock market.
Downturns and recessions are certain realities during one’s lifetime, but those are the same reasons why many wealth managers suggest taking a long-term view on investing. Simply keeping your money in the stock market versus quickly buying and selling is a risk-mitigation strategy of its own.
These downturns also pose new opportunities. Take the global pandemic, for example: 2020 created a unique window of opportunity. Certain high-growth investments performed exceptionally well as the economy reacted to COVID-19, while the brief drop in the market made some value investments available at deeply discounted prices. 2020 provides an example of how investments respond differently to economy-wide shifts, which underscores the importance of diversification as a hedge against both short and long-term losses.
Because of the unpredictability associated with short-term stock market success, diversification and investing according to when you need the money can help you reach your goal with more confidence when compared to putting all your eggs into one basket.
The Ideal Mix
Perfection is notoriously unattainable, so calling an investment mix “ideal” can feel like a loaded term. Everyone has their own unique goals, dreams, timelines, and risk capacity—what’s ideal for one may not be ideal for another. In general, the closer you are to retirement, the more conservative investment mix you might hold. Remember that portfolios can change with time; that’s the beauty of the stock market—you can change your portfolio as your goals evolve.
Take the Next Step
Diversifying your investment portfolio is more than just a buzzword—it’s a key strategy for managing risk and optimizing returns. While the concept of diversification is easy to understand, putting it into practice with the right strategy can be a little more complex. This is why partnering with an advisor who knows your specific situation and your financial needs is a must as you pursue financial success through your investments.
At Attitude Financial Advisors, our committed mission is to provide a custom financial plan while guiding you toward the future you’ve envisioned. Whether you’re prepared to diversify your investments or are simply looking to review your financial plan, we are here to take your portfolio to the next level. And because emotions drive decisions, we’re also here to help you find your winning attitude—where all financial success begins! Reach out to me via email at btrugman@attitudefinancial.com or give me a call at (516) 762-7603 to set up a free consultation.
About Bryan
Bryan Trugman is managing partner, co-founder, and a CERTIFIED FINANCIAL PLANNER™ practitioner at Attitude Financial Advisors. With more than 15 years of experience, Bryan specializes in addressing the financial needs of new parents as they seek to realign their finances, assisting divorced individuals as they navigate an unforeseen fork in the road, and strategizing with those seeking to accrue a dependable retirement nest egg. Bryan is known for being a good listener and building strong relationships with his clients so he can help them develop a customized financial plan based on what’s important to them. He is passionate about helping his clients experience financial confidence so they can worry less and play more. Bryan has a bachelor’s degree in industrial and systems engineering with a minor in mathematics from State University of New York at Binghamton. He has served on the board of the Financial Planning Association and continues to be actively involved in the national organization. He is also a member of the Plainview-Old Bethpage Chamber of Commerce and has served as its vice president and as a board member. When he’s not working, you can find Bryan on the ballroom dance floor or engaged in a fast-paced game of doubles on the tennis court. To learn more about Bryan, connect with him on LinkedIn. Or, watch his latest webinar on: How Much Is Enough? A Surprisingly Simple Way to Calculate Your Retirement Savings Needs.
Investing involves risk, including the possible loss of principal. Past performance does not guarantee future results. Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns. There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio. No investment strategy, such as asset allocation, can guarantee a profit or protect against loss. Actual client results will vary based on investment selection, timing, market conditions, and tax situation
