Personal Finance: Why you Need your “Eggs” in More than One Basket

Saturday, February 6, 2016, AM | Leave Comment

Diversification is one of the most important concepts that you need to know when it comes to your money. Putting your money into one savings account or one type of investment account puts you at risk for losing everything if you have more than $250,000 in an account or if the stock you have invested in declines in value.

How should you allocate funds to reduce your risk?

Personal Finance Why you Need your Eggs in More than One Basket

  • Determine Your Risk Tolerance

    The first thing that you should do is take stock of your risk tolerance. If you don’t want to lose your capital, you should invest mostly in government bonds, CDs or cash.

    If you have a higher risk tolerance, you may want to invest more in stocks or ETFs. A financial adviser from a company such as Harbor Financial Services may be able to help you determine how to best allocate your wealth.

  • Invest in Multiple Different Sectors

    A good investment portfolio will have exposure to a variety of stocks within a variety of sectors. You may also want to invest in stocks and bonds throughout the world to gain exposure to emerging markets or markets that may be safer for the time being.

    By putting money into electronics, health stocks and durable goods at the same time, the gains from one sector may offset or at least reduce the losses from another sector.

    To simplify the investment process, you can invest in a single ETF or mutual fund that allocates money to all the sectors that you want to invest in.

  • Different Banks Offer Different Perks

    All banks will offer you interest to keep your money in their bank. They may also offer a bonus for making an initial deposit and maintaining a balance.

    By putting your money into multiple bank accounts, you could make money for yourself while ensuring that you stay under the $250,000 threshold for each account that you have.

    This is important because the FDIC only insures your money up to $250,000 per account, and the rest could be lost if a bank collapses.

It is critical that you put your money into more than one place. Doing so allows you to dedicate a portion of your portfolio for growth while holding back some capital for expenses that you may incur today. This is the responsible way to get maximum returns in the long-term without diminishing your ability to stay liquid.

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