60 years ago, if you owned 10 individual stocks and a few bonds, an investing expert would consider that a “well-diversified” Investment portfolio. Several decades later, in the financial collapse of 2008, the Yale Endowment Fund had so many other types of investments that just 6% of the endowment was in stocks. There are several types of investments with a low correlation to stocks that would further diversify your portfolio. A few of them include:
- Direct real estate
- Commodity funds
- Long/short hedged funds
- Private equity
- Funds of funds
- Pre-IPOs
- Arbitrage funds
- High-frequency trading
- Venture Capital
- Mezzanine debt
- Royalty Funds
- Precious metals of silver and gold
- Possibly cryptocurrencies
- Plus many varieties and combinations of all of the above
Purchasing a stock index fund and a bond index fund takes no investing knowledge. However, it is also taking on a tremendous amount of risk today. This is due to a shockingly high price level of the stock market along with record lows in global interest rates set by central bankers.
A prudent investor might seriously consider lightening their U.S. stock market exposure as well as any medium to long-term bond funds. Then, they’d begin educating themselves on investing in some of the other types of investing classes. For the average investor, there are more online platforms to access these types of investments than ever before. This way, you can begin to invest in areas where the greatest and most sophisticated investment teams in the world are placing their money. By moving beyond just stocks and bonds, you’ll be joining the ranks of a modern “diversified investment portfolio.”
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