Tuesday Tip of the Week: April 4, 2017
Diversify
We have all heard it before, you have to diversify. What does it mean to be diversified? In this post, I will quickly describe what it means to be diversified.
The main purpose for diversification is so that during market downturns you can mitigate risk. When the market is doing well it is hard for anyone to lose money. Avoiding loss is another issue altogether. During down markets, you can have the risk spread over several areas and sectors. I will give an example using my Tax-Free Savings Account (TFSA). I have my TFSA spread out over 5 different funds that cover several different geographical areas and sectors. Here are the 5 funds I invested in:
1) Canadian Resource Fund: Higher Volatility
2) Emerging Markets Fund: Higher Volatility
3) Canadian Large Cap Growth Fund: Medium Volatility
4) US All Cap Growth Fund: Medium Volatility
5) US Mid Cap Growth Fund: Medium Volatility
I invested 20K spread out over these 5 funds so that I can achieve growth during up markets and reduce loss during down markets. Over the course of the year these funds have all been up and down, but overall each has grown. I plan to have this investment for many years so I do not worry about short-term growth. My plan is that it will grow consistently over time.
Having your money spread out in several areas is very important as well. This includes TFSA’s, RRSP’s, Cash, Real Estate, Fixed Income, and stocks. Funds can help your money grow. Cash and fixed income can provide stability. Below I have attached an article from Tony Robbins about his 4 Tips on Investing. Tune in tomorrow for Wednesday “WTF,” my weekly rant on things that take your cash. Happy Saving Friends!
“The beauty of diversification is it’s about as close as you can get to a free lunch in investing.” – Barry Ritholtz
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Joseph James Francis is a Financial Advisor. You can find him on various social media platforms and at www.budgetboss.ca.