Investment comes with benefits and risks too. For someone who has been investing their hard earned money, it is quite vital that they get the best returns with minimum risk associated. But, that is not really an easy task altogether. You need to plan well. You need to understand where your investment is going and where would you find yourself after a certain set time period.
To make it a little easier, we would say that there are two crucial ways through which you can ensure that your investment goes the same way which you have set in your long term as well as your short term goals. This would not only help get better returns but also reduce risk with time.
Allocate your Asset
Asset allocation is not easy, but it’s not too complicated at the same time. Asset allocation implies that you arrange and rearrange the right portfolio of bonds, stocks and cash. This will depend on what your goals are and your goals only would define what you allocate to what. At the same time, asset allocation is also dependent on how much risk you want to take comfortably.
Time diversification would ensure that you allocate your portfolio and investments in a way which is relevant and beneficial in line with changing times. You should not concentrate all your investment in just one category, which could be stocks, mutual funds, bonds, unit investments, trusts and annuities.
What it means for the stocks?
Time diversification applies mostly and widely to stocks. There is a strong belief within financial gurus that time diversification reduces stock risks considerably. If you invest in equities, the bigger the time frame of investment would be, the lesser would be the risks.
Another school of thought believes that time diversification works well in theory but seldom in practice. It does work, however, most of the investments are affected by change in dollar value over a period of time and although your money grows, it is more because of the fact that with time, you come up with newer savings and contributions and thus you make money with time.
Whatever the reasons could be, but it is quite sure that if you plan your investments for larger duration, it is bound to bring your better results and keep you more secure by reducing risks. You may end up not making some quick bucks, however it is always safe and risk free.
Nevertheless, there are factors like right planning, appropriate choice and the money you allocate to various categories that would decide what benefits you would reap at the end of a desired period. However, time diversification remains one of the most crucial factors if you want to have a secure and safe investment.
It may or may not be a definite way to ensure great returns, however, knowing what it actually is surely would help you bring the best and risk-free benefits from your investments. Remember, the right investment should be simple and custom made for you.