Diversifying is simply making sure that your assets are not all in one product or investment. Like the saying ‘Don’t Put All Your Eggs In One Basket’. If all of your money is in one place and that performs badly it is a disaster, if you have your money spread out over various investments and products and one of them doesn’t perform well, you will have the others to fall back on.
Investment Age Group
If you have a long time until you are looking to retire, you can invest in slightly riskier instruments, knowing that there is time to adjust your investments if necessary. Investing on the stock market is a popular choice because the length of the investing will even out the fluctuations in the stock market. Having said that, it is not wise to invest everything in the stock market. As you approach retirement you can move your assets into less risky areas. A downturn in the stock market just before you are planning on retiring could have terrible consequences!
If you have a shorter time until your retirement you probably want to look at more secure investments. It is important to remember that banks currently protect savings up to Rs. 1 lakh per person per bank, so any savings over that amount are unprotected.
Stock vs Real Estate Investment
Diversifying your investments can involve a lot more than just stock market investments, although they can make up a good portion of a retirement investment portfolio. Investing in property or land is a popular choice, with the costs of property generally rising, although there is some element of risk as house prices fluctuate – the trend is generally upward but they have up and down fluctuations. The money will be tied up in the property, so it can’t be accessed in a hurry. There is an amount of work involved with investing in property; becoming a landlord and the problems with tenants not paying rent on time and the costs of house repairs.
Lending to Earn
Peer to Peer lending is a new way of investing. You create a Peer to Peer website and offer personal loans through it. The returns are quite good, well above any rate from a savings account. But they are more risky, the loans are unsecured so if a large amount is lent you could stand to loose it all.
Gold and silver are a good form of investment. They tend to rise, even when the markets are suffering, although even they can drop, and they are easy to sell and realise the money. You can buy gold and silver as shares or through a dealer. You won’t make any money with gold or silver until you are ready to sell it, you don’t get any monthly payments.
Mutual Funds for Retirement
Mutual funds allow people with less money to invest and diversify by pooling together money from many different investors (normally, if you only have a small amount to invest you can’t spread it over many investments).
If you keep all of your investment eggs in one basket you could end up with egg on your face!