With a recession round the corner and the threat of increased unemployment, diversifying your savings and investments is more relevant now than ever.
What exactly is diversification? Put simply, it’s a strategy to help spread the risk of where you’re putting your money while focusing on maximising your return. If you’re investing in the stock market, buying a “global” index fund means you are exposed to countries all around the world – so if things aren’t going well in one country, you can still make a return in other countries and your portfolio won’t get hit as hard. Opening various ISAs is another way to diversify: you take advantage of more tax breaks and can therefore earn a decent return. This can be an easy way to make some cash.
Diversifying your investments is a smart strategy to help grow and preserve your wealth at the same time. We’ll be covering three main ways to diversify your savings below. 👇
Diversify within an asset class
Diversifying within an asset class basically means taking your current investments one step further. If, for example, you already invest in the stock market, consider investing in other countries or industries. That way when something happens to one specific industry or country, you still have assets in place in different locations and your portfolio doesn’t take a huge hit.
One good way to make sure you are always diversified within an asset class is to invest in index funds or ETFs. These types of basket funds make sure you’re always diversified across various industries, continents and sectors. And since they aren’t actively managed, they are cheap to hold!
Diversify across assets
Diversifying across assets basically means putting your money into different asset classes. For example, instead of keeping all your savings in a Cash ISA, you could consider putting some into bonds, or real estate funds. Many asset classes increase when others fall. For example, when the stock market dropped by -33% in February 2009, gold increased by 238% that same month. Having money in both asset classes means you can hedge against huge losses and recessions aren’t as painful.
Putting your money across various ISAs is also a good way to diversify across assets. With a LISA, you get the 35% government bonus, and with a Stocks and Shares ISA you get £20,000 per year of tax-free investments. Optimising your ISAs means more free money from the government and therefore a better return on your money.
Diversify outside the system
Putting your money into something that isn’t part of the international monetary system can be a good insurance policy (and help you sleep better at night!). Usually, keeping some money outside the international monetary system is relevant for people living in unstable countries. However, if there’s anything that 2020 has taught us is that things can go wrong very quickly. 🙄
That’s where something like physical gold comes in: it’s a commodity that isn’t under the control of politicians or economists, has held its value since the time of the Romans and will still be valuable for centuries to come. It has practical uses in electronics, dentistry and jewellery and has high supply and demand. The fact that central banks are the largest gold buyers shows that governments buy gold to protect their national reserves – further proof of the inherent value of gold. In the very long run, gold will help you beat inflation – since 2010, gold has increased by an astounding 36.6%!
Traditionally, buying gold was a complicated process involving contracts, minimum deposits and expensive insurance and storage. This is no longer the case: with an app like Minted, anyone can own gold with as little as £30 and not pay half an arm for the privilege of investing in the precious metal. At Minted our goal is to make gold accessible and affordable to everyone – with our app, you just need to create an account and you can immediately start owning gold.
Diversification is an essential strategy that every investor should take part in. It allows you to spread the risk, it helps you take advantage of various tax breaks and it means you can grow your money more effectively. It also means you are ready for anything else that 2020 throws at us. 🎉 At Minted, we help everyday savers buy gold at an affordable price – if you’re interested in learning more about us, check out our website below. 👇
