Investing all your retirement funds in one type of asset can be risky. If something happens to that asset class, your investment portfolio could be in jeopardy. Fortunately, you can mitigate the risk by spreading your funds to multiple types of assets. This is known as diversification. 

Diversifying your investment portfolio can help decrease your overall risk and increase returns. With a diversified mix of mutual funds, bonds, stock and alternative assets, you can better ensure you achieve your retirement savings goals. If you are concerned about a lack of diversification in your retirement portfolio, you can take steps today to diversify your investments. 

What You Need to Start Diversifying Your Investments

Before you can take advantage of this risk mitigation strategy, you must first understand what you need to start diversifying your investments.

Risk Tolerance

Your risk tolerance changes throughout your life. When you’re in your 20s and 30s, you can tolerate higher risk in your retirement portfolio because you have time to recover losses from market volatility. When you approach retirement age, your risk tolerance shifts. This is because your focus transitions from growth to capital preservation. In your later retirement years, your portfolio should typically be invested exclusively in guaranteed instruments, such as Treasury securities, certificates of deposit (CDs) or indexed and fixed annuities. These instruments can give you guaranteed income. 

Before diversifying your retirement portfolio, you should first understand your risk tolerance. This is determined by how many years you have left to recover losses and your own personal preferences. 

Retirement Accounts

You can select from numerous retirement accounts. If an employer-sponsored retirement plan is available to you, we recommend taking advantage of this option first, especially if your employer offers a matching contribution. 

Though traditional retirement accounts have their advantages and are often a crucial part of a diversified retirement portfolio, few offer the same diversification virtues as a self-directed IRA or a Solo 401(k). 

• Self-directed IRA: With a self-directed IRA, you can invest in both traditional and alternative assets and enjoy tax advantages. This makes a self-directed IRA an excellent retirement account if you want to diversify your retirement portfolio.
• Solo 401(k): Both individuals who generate self-employment income and owner-only businesses can use Solo 401(k) plans. You can also use this plan to allocate your assets in a variety of categories and classes.

These flexible plans give you greater control over how you invest and can let you invest in both traditional and alternative assets.

Active or Passive Management

Today, you have choices about how or who manages your retirement portfolio. For example, you can choose between active or passive management of your portfolio. A portfolio of index funds can be passively managed, while a portfolio with the potential for superior returns and less volatility may need to be actively managed. Robo-advisors are another common option, as these digital platforms manage and allocate your investments according to algorithms influenced by market activity. 

At Accuplan, we offer 401(k) administration and custodian services to serve you, answer your questions and keep your account compliant with IRS rules and regulations.

How to Diversify Your Retirement Portfolio

Diversification combines a wide range of investments with different correlation aspects, so they will not necessarily move in the same direction at the same time. In other words, if one asset class drops in value, another may rise. For example, if equities are down, real estate may be increasing in value. Over time, diversification balances your retirement portfolio’s volatility and provides more predictable, reliable returns.

1. Invest in International Markets

One way you can diversify your portfolio is by investing in international markets. If your own country’s market performs poorly, it can be beneficial to have some investments in markets abroad to balance your retirement portfolio and mitigate risk. 

If you plan to invest abroad, keep in mind that there could be different regulations, rules and processes for investing in these countries. When you invest with Accuplan, you can ensure that you remain in compliance with these rules and regulations.

2. Diversify Your Individual Asset Class Investments

One of the easiest ways to diversify a retirement portfolio is by investing in multiple assets with the same asset class, such as stocks. To diversify your stock investments, for example, you may want to buy into index funds, such as the S&P 500. This can ensure you are invested in a variety of low-risk and high-risk stocks across several industries. You may also want to invest in industries that are complementary to each other, meaning they move in opposite directions during certain scenarios or market conditions.

3. Spread Your Money Across Asset Classes

Perhaps the best way to diversify your retirement portfolio is by investing in multiple asset classes, including both traditional and alternative assets. Traditional investments include stocks, mutual funds, bonds and cash. These assets operate within the public market. Alternative investments, on the other hand, mainly operate within the private market and may be unregulated. 

Alternative assets can be complementary to conventional investments, which can make them a great addition to your portfolio. Alternative investments tend to perform with a low correlation to traditional investments. So if the stock market drops, for example, your alternative investments may be performing well.

With a self-directed retirement plan, you can invest in alternative assets that you can’t invest in with conventional retirement accounts. Along with more conventional asset classes like stocks and bonds, you can also invest in alternative investments, including:

• Private equity
• Real estate
• Precious metals like gold
• Cryptocurrencies
• Tax liens

When you can invest in more asset classes, you can increase your retirement portfolio’s diversification.

Open a Self-Directed Retirement Account

At Accuplan, we can help you diversify your retirement portfolio with a self-directed retirement savings plan. As a leading provider for administration of self-directed IRAs, we have played an integral role in the success of thousands of investors’ investment strategies. With years of experience, our dedicated experts can help you invest in what you are passionate about and provide knowledge about how you can best utilize your IRA. 

Our platform is designed with self-direction at its heart, so you can invest the way you want in alternative assets. Open a self-directed account with us at Accuplan or contact us today to learn more about how you can diversify your retirement portfolio.

Our content should not be relied on for investment advice but simply for informational or educational purposes only. Our information is not meant to provide, nor should it be depended on for advice regarding investment, tax, legal or accounting concerns.