Diversifying Your Funds

If your children have their own steady income and you’re approaching your final years on the job, separating your lose change into the mason jars on your kitchen counter may no longer be considered savvy. As you prepare for retirement, diversifying your funds or “spreading your money around” becomes a smart decision in the process.

This isn’t a means of opening multiple bank accounts, rather actually investing your money instead of letting it sit.  Not only can you gain income, but protect against loss if a market begins to fall. How? Well, if your money is invested in multiple sectors, the odds of one market failure creating the downfall of an entire portfolio becomes significantly less likely.

Investing in stocks and bonds sounds like a heavy gamble to some, but this decision will be to your benefit if variety over quantity is taken into consideration. Again, this strategy reduces the overall risk of considering investments as a waste. First, it’s important to understand that stocks help build a portfolio, bonds help the money pot grow, real estate may rise when stocks fall, international investments help growth and maintenance in finances and cash keeps a portfolio sound in terms of security and stability.

Although there are many combinations of strategies for choosing stocks and bonds, here’s one just to get you started. It has been suggested as a “rule of thumb” to subtract your age from 100 (with people living longer the better number to use is 120) and put the resulting percentage in stocks and the remaining in bonds. There are also particular rules that diversifying funds adheres to:
- At least 75% of available finances are invested in securities
- 5% or less of investments are invested in any one security
- The investments should have no more than 10% of the shares for one security

Of course, before investing you should first understand the objectives, risks, and benefits of your investments based on your financial stance. It also takes time to manage a portfolio with a wide range of investment rather than a coherent one where investments remain in one sector. In this case, time is definitely money. However, it is nearly impossible to completely diminish a potential risk factor like market risk. But this risk is not based on a gamble, rather the risk is managed.

The best route is to seek a financial advisor to figure out the best decisions for you and setting a goal before retirement. With this strategy and the right moves, you could be on the road for early retirement and not even know it.