Most people don’t know how to invest effectively. At the same time they want to invest money to earn higher returns, but they want to avoid risk. Risk can not be avoided, but it can be reduced through diversification. Here’s your basic guide to investing with greater safety the easy way by investing in 4 different types of mutual funds.
Asset allocation is the key to true diversification (balance) in your investment portfolio. By holding investments in all 4 asset classes, you can earn higher returns at only a moderate level of risk over the long term. Very simply, losses in one investment can be offset by gains in another with proper asset allocation.
Professional money managers who manage billions of dollars invest in a variety of different investments to achieve growth and lower their overall investment risk. You can follow their lead by simply investing in the following mutual funds.
Stock investing produces excellent profits when the economy and the markets are favorable, which is most of the time. The easiest way for most folks to participate is to simply invest money in general diversified STOCK FUNDS.
Traditionally, smart investors have invested in bonds as well to offset possible stock investing losses and to increase their investment income. The easiest way for the average investor to hold a diversified portfolio of bonds: invest money in BOND FUNDS.
Money market securities are safe short-term investments that pay competitive interest rates. Professional investors hold them in their portfolios to increase safety and flexibility. You can invest money here by simply owning a MONEY MARKET FUND.
The fourth asset class is commonly referred to as “alternative investments”. Savvy investors invest in the likes of foreign investments, real estate, oil and other natural resources, and precious metals like gold and silver to add even more diversification to their total portfolio. Why?
When the going gets tough in the U.S. stock market it’s difficult to earn higher returns and to make your assets grow. Thus, they hold alternative investments in their portfolio to offset stock losses. When stock investing is a loser, oil prices can be climbing, gold can be soaring, and/or real estate might be thriving, and so on.
The question is how to invest in the above alternative investments. The simple answer is to just invest money in SPECIALTY MUTUAL FUNDS. Some funds specialize by investing in sectors like oil stocks, or gold stocks, or real estate stocks.
Asset allocation, more than anything else, is the key to investing success. By simply investing in all 4 of the above asset class with mutual funds you can achieve true diversification with greater safety.
Now it’s simply a matter of how to invest across these 4 mutual fund types … how much to invest in each fund type. This will depend on your personal risk profile, and is a topic for another article.