Let’s explore the term asset diversification innovatively.
Mmmm…doesn’t that fruit carnival look awesome? METAPHOR WARNING! I can’t help it…I love how this image captures the essence of financial diversification—the variety and all the health/wealth benefits. Especially during chaotic times (like…h-hm…NOW [don’t worry, I’m wearing a mask]). Diversifying the allocation of capital reduces the exposure to any one particular asset or risk. You know this. And there are all kinds of ways to do it. Some financial wizards recommend mutual funds. Some mathematical models show that a portfolio of 25-30 stocks yields the most cost-effective level of risk reduction. And some recommend a simple mix of equities, fixed income, and a traditional 60% stock/40% bond portfolio. All good options. Based on our experience, healthy diversification happens when uncorrelated, alternative investments like Real Estate Notes are part of the mix. So, basically, there’s a variety of:
- Asset classes (with alternatives [ideally uncorrelated])
- Geographic locations (domestic and international)
- Timelines/maturity dates