One of the most important things for any investment portfolio is diversification. Saving with a 401(k) is a great idea, and everyone should try to max theirs out. But taking time to diversify is also important. Once a person has maxed out their retirement account and established emergency fund savings, the next step is to find other avenues of investment. Diversification helps insulate investors against risk.
Diversification is very important. Consider how many people lost almost everything by putting their money with Bernie Madoff exclusively. Another key thing to consider is that not every sector of the economy faces the same ups and downs. There are plenty of ways to diversify an investment portfolio. They range from the simple to the complicated.
A great option for people who’ve maxed out their 401(k)s is a Roth IRA. This is a flexible investment option, and it’s tax-advantaged, though in a different way than 401(k)s and 403(b)s. There is an income limit when it comes to eligibility, and contributions are currently capped at about $5,500 annually.
One of the simplest ways to save is with a high-yield savings account. These are offered by brick-and-mortar banks, as well as internet-only banks. Typically, a high-yield savings account has a higher minimum than a typical savings account. These accounts are a great, easy solution and can help investors compound more interest than they would otherwise do. They’re a great addition to instruments like a 401(k) or 403(b). Certificates of Deposit and government bonds are other great, low-risk options for investment.
ETFs, or exchange-traded funds, are another great and fairly simple option. ETFs are collections of stocks, bonds and other investment instruments. They track a specific index, for example the Standard & Poors 500. ETFs are easy to buy and sell, operating much like individual stocks. They can be purchased through traditional brokers, or through online brokerages.
Another great option for diversification is investment in real estate. This doesn’t have to be expensive or complicated. A great way to invest in real estate is through REITs. These real-estate investment trusts sell shares, and are similar to stocks in many ways. REITs can be bought separately, or through mutual funds and ETFs.