Wealth diversification may sound like a complicated term and practice. Watching TV business programs, financial experts drop these and other terms, making you believe that you’re illiterate when it comes to financial literacy.
The reality, though, diversification, or in this case wealth diversification, is very simple. Just focus on the word diversity. Chances are you’ve already experienced some form of diversification because of your 401K or the non-profit equivalent.
Wealth diversification is merely spreading out (diversifying) your money through multiple investments—versus putting all your eggs in one basket. While diversifying your assets is a wise strategy, it does not guarantee a profit or protect you from loss.
Why Should I Diversify My Wealth?
When investing in the financial markets, it is smart to have a diversified portfolio. Ideally, with wealth diversification, your financial investments will grow since they are exposed to more opportunities, and because of this wealth management fundamental strategy, you are lowering your risk.
Diversifying Your Portfolio
Your wealth diversification strategy is up to you and best done with an experienced and reputable financial planner. At the basic level, you might invest in the stock market, spreading your money between large and small companies that are domestic and international. Your bond wealth diversification strategy should follow a similar approach. You can also invest in alternatives such as commodities. These investments aren’t as risky but don’t have the high-reward potential as stocks. Commodities generally are agricultural products such as coffee, corn, cotton, but also include metals like copper.
Depending on how you’ve invested tax diversification methods are also an option. You can put your money into taxable accounts that return a divided or tax-deferred, similar to a retirement fund, that is taxed when money is withdrawn. You also have to factor time into the equation. If you need the money sooner, rather than later this will impact tax payments, but also how much your investments have grown.
Wealth Management Questions and Answers
Naturally, you have questions about wealth diversification. Here are some questions and answers to help you become a better investor when trying to find a firm to diversify your money.
What’s the Wealth Management Business Model?
The model does matter. Whether the firm is privately held or publicly traded, their wealth diversification strategy determines how they will manage your investments.
What Is the Relationship with Their Clients?
While wealth management falls within the financial industry, these planners are still providing a service—to you. Working with a financial firm for your wealth diversification strategy is a long-term investment by them into you. A company should place a high value on you and your goals and develop a plan to meet them.
Asking about their client-service model is an indicator of how they will help you grow your investments versus only caring how to extract your money for their bottom line.
What Else to Consider When Choosing a Wealth Diversification Portfolio?
- What are the services offered?
- What services don’t you offer?
- How do they approach investing?
- With whom will I work?
- What are your fees?
- Are they helping you to manage your wealth or your investments?
- Where is your money being held?
- What is your timeline, tax, and risk?
Wealth diversification is not a method to get rich quick. The idea is to invest in a wide range of areas to protect your hard-earned money should the market crash and to plan for your future, whether that is a retirement plan, kids’ college tuition, or whatever your needs.
Diversifying your investments is an essential wealth management fundamental and one that you do not have to figure out alone. It is not as complicated as the business reporters on TV make it seem. While knowledgeable, they can also make wealth diversification overly complicated.
Consider short-, mid-, and long-term financial planning and goals. You want to use time as an advantage to earn the gains for your portfolio and risk target. Depending on your entire portfolio of assets (real estate, business, employment and retirement plans, and the future), preparing for today’s tax environment and potential future tax environments can help increase your money.
Contact us for more information. Green Ridge Wealth Management is here to help you grow your investments to use when the time is right.