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5 investments to diversify your portfolio for a tough stock market

Stocks go up over time but it’s still scary when they fall. You’ll worry less if you’ve invested some of your money in bonds, crypto or other assets.

The market has fallen, and we don’t know when it’ll get up. The Nasdaq Composite is almost 7% down from the all-time high posted a month ago. The NYSE about 5% down.

If this is a move driven simply by bad national news, this may end soon. The big bounce Oct. 7 after a debt deal in Washington is a good sign. But if the drop is due to the sort of fundamental market reasons that lead to long bear markets, it may be with us some time.

Good news? If you have a diversified portfolio, you can sit tight. You’ve prepared by holding a variety of stocks, and other assets like bonds and crypto. Some will hold their value when stocks fall. Some will go up.

But if you’re sitting in virtually all stocks – not unusual after a decade-long, mostly bullish market for stocks – consider taking some profits and moving money into other options. Here are a few

5 investment alternatives to stocks

  1. Savings or money market accounts: If you expect a long pullback and you have short-term plans like a big purchase or a tuition payment, it might be tuck some money aside. You are giving up the market’s return, and should be prepared for the taxes you’ll pay on your gains. But this is short-term money, and it means you won’t have to sell stocks at big losses.
  2. Cryptocurrencies: This might be at the opposite end of the risk spectrum from a savings account, but that’s why returns have been much higher. And Bitcoin, the largest with about $1 trillion in circulation, has been spiking this week. It’s not clear how crypto moves in relation to stocks, but if you’re looking for return outside of stocks, it’s a class worth a look.
  3. Bonds: Bonds and bond funds are the traditional hedge against a down market because in general bond returns rise as stocks fall. The traditional advice is to put more into bonds as you age to avoid losing more than you could afford; a 30-year-old would hold 30% in bonds; a 60-year-old 60% in bonds. But with bond returns so much lower than stocks for so long, and people needing to save more for longer retirements, new rules have come into play. The 15/50 rule, for example, says you should keep 50% at minimum in stocks if you think you have 15 or more years to live.
  4. Gold and other metals: Gold in particular has long been viewed as a way to safeguard wealth, but the problem is timing. In 2009, if you bought at the first signs of the housing crisis you were –– well –– golden. But if you bought in 2010 or near the peak in 2011, you saw gold prices fall and sat on a loss for a decade. If you sold stocks during that crash and bought gold, as some advised, you took that loss and missed the rebound in stocks. Ouch.
  5. Broad market ETFs: Yes, you’re still in stocks. But if you’re mostly in individual stocks, moving money into an exchange-traded fund that holds all the S&P 500 or Nasdaq Composite stocks is a move to diversify that cuts risk. Over time, the broad market recovers and goes up; that’s the point. Individual stocks, meaning companies, may not. Some will go broke. Likewise, if you own mostly blue chips or mega-cap stocks like Apple (AAPL) or Tesla (TSLA), consider an ETF investing in small stocks or overseas stocks. Diversification includes investing in a wider range of stocks. You can also use ETFs to buy bonds, gold, real estate and other asset classes apart from stocks, of course. You may find this an easier approach than figuring out what to do with a pile of gold bars or an apartment building you’d have to manage.

5 signs your money is diversified

Keep in mind we’re not talking about dramatic moves, even in this market. We’re talking about finding a portfolio mix that works for you and minimizes worry, so you can stick with it through any kind of market. Much depends on your time horizon and your tolerance for risk, but these signs might signal that you’re diversified enough:

1. You’ve got a sizable portion of your money in four or more different asset classes.

The most common portfolio allocations have at least 10% of your money invested in asset classes like cash or money market funds, stocks, bonds, crypto and property.

2. At any given time, at least one part of your portfolio is performing well.

Like a lunch buffet, a diversified portfolio offers something for everyone, no matter their appetite that day. Even if most investments are falling, a well-diversified portfolio will include a few rising investments.

3. You aren’t fazed by daily volatility.

A well-diversified portfolio means you generally aren’t concerned about what the market does or what news is hyped on any particular day. If small market fluctuations are keeping you up at night, it could be a sign that you have too much money invested in one particular asset class.

4. You don’t listen to only one source for news, advice or ideas.

Risk and bias go hand in hand. Don’t settle for only conventional wisdom. Learn about other investment approaches, strategies and ideas, then find a balance that aligns with your financial goals and circumstances.

5. You’re not too diversified.

Spreading your investments too thin can lead to a dilution of your returns. Experts suggest that beyond a range of about a dozen to three dozen assets, additional diversification provides little, if any, additional benefit. You could also lean too heavily on lower-quality assets, which can dilute your higher-quality assets, providing you with lower overall returns.

In short, if you’re stressed trying to keep up with all your holdings, it’s probably time to simplify. That’s as bad as worrying about the market’s every up and down.

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