Some investors worry that they don’t have enough money for asset diversification. But retirement portfolio diversification can be made simple and less intimidating by understanding the concepts of diversification. New investors may be pleased to learn that it’s possible to diversify your savings, even with smaller amounts.
At first, retirement portfolio diversification might seem daunting for young investors who have not yet started to save. On the other hand, as they approach their golden years, older investors may be concerned that it’s too late to start saving.
However, investors at all levels and stages can learn how to diversify their retirement savings. Whether you’re a new or seasoned investor, there are many opportunities for diversification outside of a traditional move into stocks and bonds.
What is Diversification?
Diversification is a common way to try to limit risk in a retirement portfolio. Diversifying investments can hedge the risk of loss of any one asset by spreading out the risk. By putting all of their eggs in literally one investment basket, investors limit their ability to grow and also increase their potential for losses.
By investing money in different assets and varying types of assets and asset classes, an investor can limit risk in volatile markets. This means savvy investors may not only invest in different stocks, but also add bonds, gold, and alternative assets to a retirement portfolio.
One factor to consider in diversification is to limit exposure to unforeseeable swings that can happen in any market at any time. Climate change, political tension, supply and demand all impact market adjustments and could impact an investor’s considerations to a diversified trading strategy.
Invest in Alternative Assets
Alternative assets, like cryptocurrencies, can add dimension to diversification because they don’t always correlate to the ups and downs of the stock market. Additional alternative investments include real estate, precious metals, LLCs, private equity, timber, structured settlements, oil and gas, and more.
Alternative investments differ from stocks and bonds because they are usually tangible assets tied to different market forces. For instance, the stock market could hit a lull while the real estate market is booming.
Harvard Business School Professor Randolph Cohen has noted that a benefit of alternative asset classes is their ability to let investors constantly seek emerging opportunities for diversification.
Diversify with Cryptocurrencies
As an alternative asset, crypto is an innovative way to add diversification to a retirement portfolio. Some investors choose to diversify with crypto because it’s an exciting digital asset class, while others are attracted to its potential for big gains.
Investors with a self-directed IRA have control over what they invest in. You can choose which asset classes you prefer, including diversifying your portfolio with crypto. This benefit means that you can do your own research and choose coins that follow your investment preferences.
Tax Benefits of Crypto IRAs
When diversifying with cryptocurrencies, investors can consider platforms like Bitcoin IRA. Bitcoin IRA allows you to use a tax-advantaged1 self-directed IRA account to invest in alternative assets like crypto. Through a Bitcoin IRA account, you can hold digital assets within a self-directed traditional or Roth IRA. If you invest with a traditional self-directed IRA, you do not pay income tax on the amount put into the account but pay taxes at retirement age upon withdrawal. This could encourage saving because the money can be taken from your paycheck before taxes are assessed.
Bitcoin IRA is the first trading platform designed to allow American investors the opportunity to diversify with cryptocurrency. Investors can access their accounts 24/7 online or using a convenient mobile app. They can fund an account with a rollover or open an account with new cash contributions.
Maintain Consistent Diversification
Once an investor has chosen a favorite asset diversification path — whether through crypto, another alternative asset, stocks and bonds diversification or all of the above — many experts recommend continuing to invest regularly. Regardless of how much is added to an investment account to kick off the diversification, regularly adding to the nest egg can help the investment grow, even in the lean years.
1Some taxes may apply. We recommend you consult your tax, legal, and investment advisor.