How to Plan a Diversification Strategy With a Gold IRA
When it comes to creating your retirement plan , you’ve probably heard it a million times before: diversify, diversify, diversify. Any savvy investor knows that diversification is a key factor that can help hedge against market crises, economic decline, and geopolitical tensions.
The problem is, creating a diversification strategy that works for you might sound difficult because you will get conflicting messages from experts and financial advisors alike. Ultimately, once you have the right tools and examples of diversification, you can create the perfect plan
So, where do you begin when it comes to diversifying your savings? Because there are many avenues you can take to achieve true diversification, the best place to start your diversification strategy is with a clear and comprehensive definition of the word.
What is diversification?
Diversification happens when you add various assets to your savings as a way to mitigate risk. Remember that old saying, “Don’t put all your eggs in one basket”? The same holds true for your savings.
It’s important to note that there are different levels of diversification for your savings, and you don’t just have to diversify within the stock and bond markets (although, that is one place you can start).
As you create your diversification strategy, you will have a lot of assets to choose from. Most planners are familiar — at least to some degree — with stocks and bonds, and they may also have heard about the importance of diversifying their savings.
When it comes to the stock and bond markets, you are able to diversify your assets even further by diversifying within each asset class.
For stocks, some experts suggest that you have an S&P 500 index fund that exposes you to large-cap stocks and another index fund for exposure to small-cap stocks. It might also be advantageous to include both domestic and international companies. Additionally, some say should consider diversifying across several different industries. For example, you wouldn’t want to put your entire life savings into the US tech industry because if the tech giants fall, so would your entire savings. Likewise, a mix of growth, dividend, and value stocks could work well for you.
In terms of bonds, some experts say that an optimal strategy could include both short- and long-term bonds; corporate bonds and Treasuries, and the US and international bonds. You may also want to look at bonds with different duration (a measure of their sensitivity to changes in interest rates).
Adding alternative assets, such as real estate and physical precious metals, is a great option too. Gold and silver, for instance, have historically performed very well when typical stocks and bonds crashed, and — most importantly — these precious metals are the best-known inflation hedge out there. Adding a Gold IRA to your diversification plan, is a great way to diversify outside of the stock and bond markets.
How does diversification reduce risk?
When you diversify your savings with different asset classes as well as different markets you can work toward maximizing your yields and become exposed to more growth opportunities. On average, a truly diversified savings account yields higher returns in the long-term compared to savings that focus on a single asset class. For instance, in the chart below, you can see how an IRA diversified with gold more than doubled the performance of an IRA invested only in stocks.
Diversified savings doesn’t guarantee gains, but it typically improves returns and historically performs better than non-diversified portfolios.
How to create a successful diversification strategy
We created this simple 3-step process to help you truly diversify your savings. Remember, this is only one of the ways to diversify your savings. Other ways to achieve diversification can include real estate. Talk to your financial advisor today to learn more.
Step 1: Determine your goals
Before you decide the composition of your savings, you need to determine your
- Time frame (in the case of retirement savings, when do you plan to retire?)
- Financial needs (how much money do you estimate you’ll need during retirement?)
- Risk profile (are you comfortable with high risk? Note: Typically, when saving for your retirement, you’ll adjust your risk profile along the way as you may want to be more aggressive in the beginning but more careful as you approach retirement age)
Finding and understanding the answers to these questions will help you determine the optimal mix of assets and adjust your accounts regularly to take into consideration new market developments and changing needs.
Step 2: Build a well-rounded portfolio
Diversification isn’t only about owning as many different assets and asset classes as possible. It’s about owning the right mix of assets. You don’t need to own 100 different stocks, bonds, and other assets. The trick is to own assets that play different roles in your portfolio.
Think about building your portfolio like building a sports team: You need a well-rounded team where each member plays a different role for the good of the whole team.
So, one of the basic rules of diversification is that each asset you choose should serve a different function. How your team is put together depends on your financial goals, your risk appetite, and your time frame.
Step 3: Diversify within each asset class
Remember that you can choose different levels of risk within the stock and bond markets. Additionally, if you choose real estate holdings, you can choose different locations as well as zoning parameters. Finally, if you open your Gold IRA, remember that the Gold IRA can hold more than just gold. As a matter of fact, you can diversify within the precious metals market with a Gold IRA by choosing gold, silver, platinum, and palladium.
How to maintain your diversified portfolio
As you get closer to your goal with your retirement savings (retirement), you may want to move things around and diversify more or consolidate into more stable assets.
However, once your savings are built and diversified to your liking, it’s time to celebrate! You’ve taken an important step towards securing your wealth and your retirement.
But there’s still some work that needs to be done. As technology advances, markets fluctuate, and economic conditions change, you need to revisit your savings to make sure it’s still the optimal mix of assets and asset allocations. Your own situation might also change — perhaps you got an unexpected promotion or want to retire earlier. Inevitably, you’ll need to rebalance your savings to meet those changing needs and conditions.
Ensure that you keep track of your portfolio’s performance. Does it meet the benchmarks you and your advisor set? Should you increase or decrease your stock holdings? Should you add more or different precious metals?
As part of your regular maintenance, you may consider doing the following:
- Monitor your assets periodically for performance and risk.
- Rebalance your portfolio to adjust your asset mix with your financial goals in mind to adapt to changes in the market and economy.
- Review your diversification strategy annually to ensure your goals still make sense to your current and expected situation.
If you are unsure about the specifics involved in a certain asset class, you always have the option to partner with an advisor or specialist in that space who can act as your subject matter expert to fill in the gaps of your knowledge and allow you to make objectively informed decisions.
Working with Gold Alliance, for instance, you’ll have 24/7 online access to view the performance of your Gold IRA, and you’ll receive regular statements. In addition, your dedicated Account Executive is always just a phone call or an email away if you have any questions.
What are the benefits of a Gold IRA for diversification
Precious metals are one of the few assets that can help you achieve true diversification through your diversification strategy. Precious metals have a 5,000-year history of protecting and growing wealth during times of financial uncertainty, economic collapse, and wars.
Among the benefits of opening a Gold IRA is the fact that you will work toward protecting your savings from market volatility, inflation, and financial crises. You can always dig deeper with this in-depth look at gold.
With over 2 decades of experience, a solid reputation, and excellent customer service, Gold Alliance is an industry leader and has one of the highest ratings on the Better Business Bureau. We hope that you consider us when you develop your diversification strategy that includes a Gold IRA.
Learn more about opening a Gold IRA with our FREE Gold Information Kit.
With over 2 decades of experience, a solid reputation, and excellent customer service, Gold Alliance is an industry leader and has one of the highest ratings on the Better Business Bureau. We hope that you consider us when you consider diversifying your investments because why wouldn’t you consult a company with experience when you make decisions about your financial future?