Most of us have heard the saying, “Don’t put all your eggs in one basket.” The idea is that if you carry all your eggs in one basket and it falls, you risk breaking all your eggs. Well, it’s not just about the eggs — it’s a sound long-term strategy for managing your investments. By spreading investments across various asset classes, industries and geographic regions, the impact of poor-performing assets could potentially be minimized.
Diversification gives investors access to different assets, helping to balance their overall portfolio. While some assets may underperform, others may thrive. Ultimately, a well-diversified portfolio balances risk and reward, offering investors a more resilient and effective approach to navigating the uncertainties of financial markets.
Assessing your portfolio is the first step to determining your level of diversification. So, how resilient is your portfolio currently? Take the quiz to find out.
Diversification is the bedrock of a robust investment strategy. It helps to mitigate risk and volatility in your portfolio and can improve your potential returns.
During uncertain economic times, having a mix of different investments can provide a measure of balance to your portfolio. For example, when many stocks drop in value during a recession, other things like government bonds and gold can help protect your overall portfolio. Keeping some money in safe options like certificates of deposit (CDs) and money market funds may also provide stability, especially when the economy isn’t doing well.
Beyond risk mitigation, diversification opens doors to new opportunities and long-term growth potential. Though stocks offer one of the greatest avenues for growth potential over the long haul, an increasing number of investors are turning to alternative assets to round out their portfolios and get exposure to potentially higher return opportunities.
Alternative assets live outside traditional investments, such as stocks, bonds and cash, and include real estate, venture capital, private credit and more. Real estate investment trusts (REITs) — companies that own or finance income-producing real estate — saw an annualized return of 7.73% between 2004 and 2023. Venture capital reached a median net internal rate of return (IRR) of 22.7% between 2009 and 2019. Increased demand from investors for opportunities outside traditional assets is driving the share of the global investable market attributed to alternative investments from 12% in 2018 to an expected 24% by 2025.
At the end of the day, it’s hard to pick the best asset classes each year. But diversification helps by exposing you to the return potential of different asset classes.
Diversification has different levels. A portfolio of stocks, bonds, cash, real estate and commodities is more
diversified than a portfolio of just stocks and bonds.
Here are some things to consider as you work to diversify your portfolio:
Portfolio diversification is crucial for managing risk and optimizing returns. And while alternative assets are playing an increasingly important role in investors’ portfolios, until recently, access to these investments has been limited to the wealthy.
With SoFi Alternative Investments, regular investors can diversify their portfolios and build and help protect their wealth with investment options beyond traditional stocks and bonds. Access funds that include commodities, private credit, pre-IPO unicorns and more, through a single, user-friendly platform that offers a streamlined investing experience.
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