Having a plan for when things go wrong with your investing strategy can make all the difference.
From late February until mid-March, the stock market suffered one of the worst drops in its history, losing 34 percent in one month before eventually climbing back.
However, stock market corrections do happen from time to time and can set you back significantly if you are not prepared.
You may be asking,” how can I protect my investments to make sure it doesn’t happen again?”
Keep reading this comprehensive guide and discover diverse investment options to keep your portfolio in the green.
1. Commodities
Commodities are one of those go-to investments when financial markets are looking unstable. Commodities are essential goods that can be bought and sold.
The price of commodities is influenced by several outside factors like
- Natural disasters
- Economic developments
- Weather patterns
- Advances in technology
- Politics
- Epidemics
However, the most important factor that influences the price of commodities is one of the most basic principles of economics, supply and demand.
Commodities are typically categorized in four segments, those include:
- Energy
- Precious metals
- Livestock
- Agriculture
The stocks in each respective category will be affected by different factors – making it essential to understand each one.
Energy
Energy is one of the most vital commodities traded on the financial markets. Without it, we would freeze in the winter and roast in the summer. Energy comes in all different forms including
- Oil
- Natural gas
- Coal
- Nuclear energy
- Gas liquids
- Solar
- Wind
- Hydropower
- Geothermal
- Wind
- Biomass
Oil and natural gas are two of the most traded energy categories for diversifying your portfolio. Examples include Exxon Mobile (XOM) and Chevron (CVX).
Precious Metals
Who knew the beautiful, shiny metals that are worn as jewelry could also be used to diversify your portfolio and help protect against stock market corrections.
Precious metals can come in many forms:
- Gold
- Silver
- Platinum
- Palladium
Once touted as a pet rock, gold has been making headlines as a useful hedge against inflation on its way to all-time highs. Inflation is not good for the stock market as it can drag the value of currencies, such as the U.S dollar down – resulting in a decrease in value for many stocks.
There are various ways to invest in metals – including ETFs, futures, mutual funds, metal miners, and buying physical metals.
Livestock & Agriculture
Livestock and agriculture are also commodities worth holding to create a diverse investment portfolio.
These include commodities such as:
- Corn
- Soybean
- Cattle
- Cotton
- Lean hogs
- Wheat
- Coffee
- Oats
- Canola
Cattle, corn, and soybeans are some of the most popular commodities in terms of cash receipts. Examples of investments in this category are Tyson Foods (TSN) and Nutrien (NTR).
2. Bonds
Bonds are considered a fixed income investment in which they pay a fixed rate to their holders. Governments and certain corporations will issue bonds typically in order to raise money for various projects.
Most bonds are publically traded just like stocks and can be bought and sold on an exchange such as the New York Stock Exchange, Nasdaq, or over-the-counter market.
They are considered a fixed income investment because when they are issued, they have a set time and date in which they must be paid back, as well as a fixed interest payment.
3. Foreign Investments
Although global financial markets influence each other, they are not tied to the same price action as each other – meaning investing in foreign stock markets can help offset price fluctuations in domestic markets.
As globalization continues to expand, having a diverse investment portfolio consisting of foreign and domestic stocks is crucial.
One way of investing in foreign markets is by purchasing individual stocks like Alibaba & Baidu (China), Nokia (Finland), Yandex (Russia), or Nikon (Japan).
Another option for investing in foreign markets and diversifying your portfolio is through the purchase of an international index fund. International index funds are a great way to invest without having too much exposure. Some of the most popular international index funds to gain exposure to foreign markets include:
- Fidelity International Index (FSPSX)
- Schwab Internaltional Index (SWISX)
- Vanguard Developed Markets (VTMGX)
- T. Rowe Price Global Stock (PRGSX)
You can choose from investing in emerging markets, specific countries, or an index fund that is diverse and includes multiple international markets.
4. Real Estate
Real estate is always a hot topic, no matter if the market is booming or crashing, you can expect investors to be speculating on real estate prices.
There have been many books written about how investing in real estate is the way to growing wealth. And that may be true, but you don’t need to be a real estate investor to invest in real estate.
There is a good deal of options available to you, one of which is REITs. REITs or real estate investment trusts trade on the stock market just like any other stock.
The key difference between REITs and other stocks is the underlying assets. REITs are actual companies that own income-generating properties. There are various types of real estate that REITs operate, including:
- Offices
- Industrials
- Retail
- Hospitality
- Residential
- Health care
- Storage
- Data centers
- Infrastructure
Some REITs will have a diversified portfolio consisting of several of these sectors. Each sector offers a unique investing experience.
For example, since the beginning of the pandemic, it has been observed that many practices have gone online in response to not being able to meet face to face. This may present an opportunity to invest in data centers, as more companies will need somewhere to store their data securely.
5. Stocks
You can’t have a diverse portfolio without including a number of stocks. Stocks are going to be the primary driver of your portfolio because as the economy grows, so does the stock market.
Consider diversifying the stocks you invest in by:
- Size (market cap)
- Sector
- Industry
By including several equities that are diversified in these areas, you will be managing your risk appropriately. If one sector is lagging one day, another sector can help mitigate the loss.
Looking for Additional Diverse Investment Ideas?
No matter what your investment strategy consists of, having a diverse investment portfolio is a key step in risk management. As some would say, “It’s easy making money in the stock market, the hard part is keeping it!”
For more helpful investment ideas, check out the rest of our website!
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