THE FINANCIAL EQUATION: Diversification: What You Need to Know
It’s hard to believe I’ve been writing and getting financial articles published for years and I’ve yet to cover the topic of diversification with my readers…well I’m finally covering that topic right here!
What is Diversification?
Diversification is a strategy to spread your money between varying types of investments (think stocks, bonds, mutual funds, ETFs, annuities, etc.; you’ve probably heard the old saying: don’t put all your eggs in one basket). Diversification’s chief aim is not to make you more money over time, but to limit your exposure to downside volatility (which is what most people want when certain markets get rough). Ideally your investments are diversified enough across company sizes, asset classes, international/global exposure, etc. so that those investment types do not correlate (move in the same manner).
Are There More Ways to Diversify?
Diversification with low correlation amongst various asset classes is understandably important, but it is not the only type of diversification to consider. You may want to consider diversifying potential income stream sources (think individual bonds, bond funds, fixed annuities, stock/mutual fund/ETF dividends, pensions, social security, etc.). You’d also want to give some thought to diversifying by type of taxation treatment (traditional or Roth IRA/401k/403b, annuities, brokerage accounts, life insurance, etc.) as this can help boost total net returns over time if utilized correctly.
What if My Portfolio Isn’t Properly Diversified?
If you haven’t considered these options (Pre-tax or after-tax? How about no tax?) or your advisor hasn’t discussed these other diversification strategies with you, may want to ask yourself if you’re working with the right advisor (a fiduciary should consider these options and discuss them with you). As the CEO of 2 practices (an RIA firm and a tax/accounting firm), you can be sure that we will discuss all diversification considerations with our clients. It’s in your best interest to do so, and we are obligated to do what is in your best interest every time without exception…you’re welcome!
Find an experienced financial advisor who keeps clients properly diversified, works for an RIA firm, earns his/her money from fees (NOT commissions), believes in having an abundance of investment choices for clients, and has the heart and demeanor of a teacher, NOT a salesman, and chances are you’ve found the right financial advisor to help you prepare and plan for your financial goals.
Authored by Martin A. Federici, Jr., CEO of both MF Advisers, Inc. and MF Tax & Accounting, Inc.
About MF Advisers, Inc.
MF Advisers, Inc. is a full-service, fee-only RIA firm and fiduciary based in PA & FL specializing in wealth management, investment advice, and financial planning.
With 20+ years of licensed experience, over 10 years of professional education, and an unwavering commitment to improving your financial situation, MF Advisers, Inc. is the advisory firm to best serve YOU.
To learn more about Martin Federici, view his Paladin Registry research report.
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