The old saying, “Don’t put all your eggs in one basket,” applies to many areas of life, including investing. If you put all your money into a single investment, you may take on more risk than you would if you had a diversified portfolio.
A diversified portfolio is a collection of different strategies from various industries, countries, or risk ratings. The reason for having a diversified portfolio is that if specific strategies decline, others offset the decline and accumulate in value. Diversification is essential in a bear market when stock prices are falling by 20% or more since maintaining a diverse portfolio can make a bear market much more tolerable to some investors. Here are some strategies that may help diversify a portfolio during a bear market:
Ideally, you may want to consider a wide range of Bonds such as corporate, municipals, Treasuries, and even foreign issues since bonds may move reverse to stocks. Also, be aware of short-term to mid-term maturity dates at specific times aligned with your financial plan to provide you with income or money to reinvest.
When it comes to long-term investing, it’s wise to have a diversified portfolio among various domestic stocks. Including large and small and rapidly growing and dividend-paying stocks.
Don’t forget to add real estate investment trusts (REITs) to your diversified portfolio. They consist of real estate assets that typically produce income at different times.
An annuity is a contract with an insurance company to provide an income stream during retirement. It is for a specified period or the remainder of the annuitant’s life, regardless of market performance. Annuities help address the risk of outliving retirement savings and are purchased with monthly premiums or a lump-sum payment.
How can you weather a bear market?
In addition to diversifying your portfolio, consider these ideas when the stock market drops and leaves you feeling anxious:
Keep your goals in check
You should design your portfolio in a way that will allow you to meet your short and long-term goals. Whether you’re saving for a home renovation, retirement, or college tuition years down the road, your portfolio strategies should reflect your goals. In a bear market, consider your goals and don’t make any changes if you’re still on track to achieve them. Sometimes, your best course of action is to stay the course and ride out the storm.
Realize downturns don’t last
Time after time, history shows us that a bear market is an inevitable part of investing, as is market recovery. While past results don’t guarantee future results, remembering that downturns are only temporary may be just what you need. This can help avoid making rash decisions based on panic and fear.
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An annuity is intended to be a long-term, tax-deferred retirement vehicle. Earnings are taxable as ordinary income when distributed, and if withdrawn before age 59½, may be subject to a 10% federal tax penalty. If the annuity will fund an IRA or other tax-qualified plan, the tax deferral feature offers no additional value. Qualified distributions from a Roth IRA are generally excluded from gross income, but taxes and penalties may apply to non-qualified distributions. Consult a tax advisor for specific information.
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