There are a number of investing strategies, all with many advocates purporting to espouse the best, lowest risk or most profitable way to invest. But in reality, a well-balanced, diversified portfolio of investment is the most sensible approach. As with anything in life, it makes sense not to put all of ones eggs in a single basket because, as we are all painfully aware, that basket could get dropped no matter how tight a grip we personally hold over it.
So, where and how should one invest? Well the real answer is that every investor will have different goals, and each will lean towards weighting their investment strategy in different directions. Some younger investors may have decades before they require any liquidity, so might choose to invest more in illiquid assets like real estate or niche alternative investments like timberlands, and they might also choose to invest more in riskier assets like the stock market as they have sufficient time in order to recover losses in the event of falling markets. Other investors approaching their twilight years may choose shorter term liquid assets that are seen as lower risk, but in turn will likely generate a lesser return on investment.
One thing remains relatively static throughout most investor profiles, and most sensible Advisors consider an essential part of a truly diversified and optimise investment portfolio, and that is holding at least some investments for income. There are all sorts of income generating assets to choose from, including financial assets like stock which generate dividends, or bond, or other more complex financial instruments. Others may choose to invest some of their capital into income generating real estate so that the value of their capital is stored in the value of the underlying property which, given a long enough time frame and proper care and management will always rise in value whilst providing monthly income payments.
The importance of income investments lies in the fact that – from the first month, or the first year, any income received offsets the potential for any capital loss, and what’s more, the income can be reinvested in other assets which will then grow creating a compound growth effect which maximises overall returns whilst adding further diversification and thus lowering portfolio risk.
Every Investor should take into account the benefits of holding income investments in their portfolio, and should also consider diversifying into assets that are not dependent on the performance (or existence) of financial markets. This seems only logical against a background of volatile financial markets, a gloomy economic outlook, low interest rates and high inflation. Indeed, alternative investments of one kind or another i.e. investment what provide a return outside of financial markets, should at least be investigated by investors and Advisors, as holding all of your eggs in that financial market basket looks riskier and riskier as time goes on.