When you think about investing, it is important to consider your strategy for putting your hard-earned money to work for you. Even the kinds of investment that you want to make should be part of your analysis when you are ready with even a small pile of cash to invest.
Money managers tell you that it is import to diversify across various assets. The idea is not to put all your eggs in one basket in case something goes awry and you are left holding just the basket.
What does diversification mean?
In determining where you should put your money, you must understand diversification. There are several ways to diversify such as selecting different industry sectors, across market locations around the world, or choosing different types of investments.
The idea is that diversification will reduce your risk of exposure to market fluctuations. Such fluctuations, or the upward and downward movement of stock evaluations, can happen with the ebb and flow of demand for certain products, or to the something like a natural event that affects a particular industry. And don’t forget the impact of high interest rates on house purchases and other goods and services.
When you are looking at your next buy-in you want to consider where you currently have your money invested and where else to look to help you improve your potential return on investment.
Let’s take a look at stocks and market sectors.
Stocks
Your first step in to purchasing an investment may be in stocks. When you purchase a stock, you are investing in the company that owns the stock and you own shares of the company in return for your investment. Depending on the type of stock you may also receive dividends from the company on the amount of shares you own.
With stocks there are multiple sectors to consider investment.
Broad industry areas with some examples include
- Energy – gas and oil companies
- Materials– steel producers or paint and paper companies
- Industrials – heavy machinery, transportation goods
- Financials – banks and other financial services companies
- Consumer goods – staple goods such as food and personal products, and discretionary products such as cars and electronics
- Heath care – medical equipment, health care providers
- IT – technology software and services such as cloud
- Communications – Internet service providers and mobile
As you see there are many areas you can take advantage of for consideration.
Companies align with a stock market sector depending upon the product they sell or according to their service area. Within each area, companies are further broken up by the size of their companies into small, medium or large-cap. It may make a difference to you if you are looking for a stable large company that’s been around for a while or a small company with plenty of growth potential.
There is much to think about when you do your research.
Real Estate
While real estate is an industry sector under stocks, it is an area that you may want to consider as a class on its own. As mentioned, it is vulnerable to interest rate fluctuations, and demands in housing that can make it a volatile investment.
There are opportunities to consider in owning property in residential, commercial, industrial, or land development.
A popular way to get into real estate is through ownership in a REIT (Real Estate Investment Trust). A REIT pools the investor money and returns a share of the increased value or interest on the investment, in dividends to the shareholders of the REIT.
Portfolio
When you are establishing your portfolio, remember that diversification is your best way to ensure that your investments grow over time. Your investments will weather any market fluctuations to help you achieve your financial goals.
Post note
There are other diversification considerations to keep in mind. However, as an introduction to stocks and classes, you will want to focus on the industries noted.
As always, you must become informed and make your own decisions. This introduction is not a recommendation to buy any one area or any specific stock.
There are many sources of information from books to blog posts on investing. And always seek professional advice when you are uncertain of the path to take.
Resources
https://time.com/personal-finance/article/types-of-real-estate-investments
The Intelligent Investor by Benjamin Graham (1949)