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The New Diversification: Top Five Practical Actions for a More Dynamic & Diverse Portfolio

The New Diversification: Top Five Practical Actions for a More Dynamic & Diverse Portfolio

Magnifying glassMarkets aren’t behaving the way they used to. Yes they have continued to appreciate and produce solid gains with both the Dow Jones Index and S&P 500 steadily rising over the past 18 months but they aren’t the same markets that are parents once invested in.  Gridlocked governments avoid the tough decisions.  Public and private sectors seem unable to work together to find the real solutions.  People who’ve spent their lives working, saving and planning – people who’ve done ‘everything right’ – are worried about their future.

The traditional mix of stocks and bonds no longer delivers returns you need.  Volatility has fueled fear of owning stocks.  Bonds no longer deliver.  Yields are so low that most fixed income doesn’t even protect from inflation.  Yet, people need returns more than ever because they’re living longer.

It’s time to rewrite the rules of building your portfolio.  BlackRock, Inc. (NYSE: BLK), the world’s largest asset manager, believes tumultuous change brings opportunity and that investors must become more flexible at adapting to rapidly changing, hyper connected global markets in order to achieve returns that aren’t consumed by inflation.  They want today’s short-term savers to become long-term investors and start investing more for retirement.  31% of American workers have saved nothing for retirement.  As a result we have five practical actions that you can take for a more dynamic, diverse portfolio.

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1.    Rethink the Cost of Cash

Holding too much cash is no way to save.  Cash will lose nearly half its purchasing power over the course of a 20-year retirement.  You need strategies that go beyond cash.

2.    Seek Income in Different Places

For income that beats inflation, investors have to consider new opportunities.  Many companies that pay dividends deliver twice the yields of government bonds.  For example, look for higher yields in emerging market sovereign debt.  50% of the world’s GDP is now represented in emerging markets.

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3.    Open Your Eyes to Alternatives

Alternatives like long/short strategies, commodities, real estate and exchange traded funds (ETFs) have the potential to provide above-average returns and could reduce your risk because they’re less likely to more in tandem with stocks and bonds.

4.    Be Active About Passive

Use ETFs.  They’re an important building block and a low-cost way to gain access to a full range of asset classes and global markets.  ETFs can be traded like stocks, so they allow you to easily adjust your portfolio when the need arises.

5.    Use Your Longevity

Many people worry they’ll outlive their income.  But because we’re going to live longer, we can expand our investment horizon well beyond the day we retire.  50-year-olds can look at 25-year time horizons – even 65-year-olds have the life expectancy to consider equities, commodities and alternatives to keep generating returns over the long term.  Consider ways to keep your money working for you by using your longevity to ride out market cycles.

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