Diversification is one of the most important factors when it comes to personal wealth creation. Safeguarding your finances now is important to ensure that you get to enjoy financial freedom later in life without the stress or hassle of failed investments down the line. This short guide is aimed at helping you to ensure that your wealth is sufficiently diversified, protecting you from potential losses and pitfalls in the future.
Start small
Even in the early stages of creating your personal wealth, it is important to ensure that your finances are protected. Creating a healthy savings account is always the first step, and from there, you can begin to investigate what kind of path you want to take when it comes to creating your future wealth.
Though the dream for many is first and foremost to own their own home, creating wealth prior to making this commitment can be extremely beneficial too. If you are considering the purchase of your first home, it might be prudent to first invest in something smaller like a share portfolio. This will provide you with a tangible asset that you can present to the bank as collateral and is something that will remain an asset for you later as you are paying down your mortgage.
Diversify from the beginning
By investing in shares to start out, you have the option to diversify your investments from the very beginning. The beauty of buying shares is that you can have a selection of companies within one share portfolio which will essentially protect you from financial pitfalls in the worst-case scenario. No matter how large or small, your initial portfolio is, it is important to ensure that it is balanced between different companies across different industries so that you have the best potential for growth. Also invest in stocks that offer hedge against inflation like safe dividend stocks.
Some choose to buy stocks in Australia or other countries as well. By investing in international markets, you have the opportunity to reap the rewards of multiple economies, which offer you the greatest level of diversification. This way, your portfolio is safeguarded from the economic impacts of any one country by being spread around the world.
Don’t overdo it
Once you begin on the path to wealth creation, it is easy to get wrapped up in the markets and to begin making changes to your portfolio frequently. More frequent changes are not always better when it comes to investing and wealth creation as the companies you invest in need time to develop and to earn you an income. When you choose to invest in a portfolio of stocks, it is best to see it as a long-term commitment and to make your initial investment decisions wisely rather than chopping and changing regularly.
For those just starting out in the share market, blue-chip investments are a solid foundation for a share portfolio. As you learn more about the markets and investing as a whole, you can then extend your investments to involve a degree of risk with maybe some smaller and more alternative companies. As with all wealth creation, the best bet is always to take it slow. Despite the stories, in most cases, big money cannot be made overnight. Instead, it is a slow and steady, gradual process that will see you much better off financially in the future.
