Want to reduce your risks while investing? Well, you can mix them up. If one investment has a loss, the other one can shield you. Hence the saying, “Don’t put all your eggs in one basket”. Mixing investments is simply putting funds in different investments that don’t behave the same in the market. This is determined by exploring the risks and advantages of each type of investment.
How do you mix investments well? Below are some pointers to get you to the right direction on the allocation of funds.
- Spread your wings. – Don’t concentrate on one specific sector. It is good to consider all investment opportunities. Choose investments with different rates of return. However, choose manageable investments.
- Increase your investment value– increase the amount you are investing by reinvesting your returns. This reduces the risk of depreciation of investment especially if investment is long-term.
- Be in the know– assess the market regularly and be ready to change investment when they are not performing over a period of time.
- Cost of investment– There are investments that have fees such as monthly fees, transaction fees and statement fees. This may reduce the returns you are to get.
Here is a guide on how to mix investments.
- Open investment allows the investor to put all funds in different shares or in different bonds.
- Invest between 40%-85% in shares and the rest in bonds or others. The investor is putting more funds in shares than bonds or fixed income.
- Invest between 20%-60% in shares and the remaining in others. – The investor may put up to 60% in shares and the remaining 40% is invested in bonds or equities.
- Invest heavily in bonds and others and up to 35% in shares. These investors are cautious. The investor puts 65% of his funds in bonds.
- Targeted Returns- The investor already has an expected profit that they will get from their investment. Here, the investor chooses the returns based on the amount they have and the time the investment will take.
Why mix investments?
Investors have different approaches to blending their investments.
- Some investors want to balance their risks protecting their wealth in all market conditions.
- Mixing investments provides a chance for growth in value for the investment.
- Probability of high returns in mixed investments as compared to fixed investments. Mixing is a blend of fixed investments and equities.
It is advisable to consider mixed investment when your objectives are moderate to long-term. The longer the period, the higher the chance of profitability.
Some investments that can be mixed are
- Money market
- Fixed deposits
- Real estate investments.
Mixing investments is the way to go. However, evaluating your risk tolerance in advance will aid the process. Knowing your risk appetite will guide you on which investments to mix. Investment companies have ready models that may assist an investor in this process.
Sources: YoungMogul, bankiter, investopedia, fidelity, bbva