Diversify Your Investments: 5 Baskets for Your Nest Eggs

Posted on August 2, 2017 by Dan Kent
Biggest winners and losers on TSX today

See what Stocktrades.ca founder Dan Kent is investing in right now

Dan is on blossom with over 20,000 Canadian investors sharing insights and real-time trades:

“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.”Warren Buffett

What’s the most effective way to invest when the stock market sits at an all-time high? How can you continue to grow your wealth without risking a huge loss that could come with buying stocks?

These aren’t easy questions to answer. After all, you don’t want to end up like the Brazilian billionaire who lost $35 billion in a single year.

So what’s an investor to do? How can you diversify your investments?

Ultimately, no single investment is secure. Therefore, the safest and smartest move is to diversify your investments. By spreading your capital across multiple investments, you limit your potential losses while allowing your capital to continue growing.

To keep your investments secure – with the potential of a healthy return – consider diversifying across these five investment types.

1. Place the bulk of your retirement in ETFs

Exchange Traded Funds (ETFs) are likely the smartest investment tool for the average investor. An ETF is a fund that invests in a group of companies (typically within a single industry), allowing an investor to capitalize on a market’s growth without being hit hard if a single stock collapses.

For example, if you love tech companies, an ETF may allow you to purchase one stock and own shares in Apple, Amazon, Google, and a variety of other tech firms. As long as the majority of these companies increase in value, so does your investment. Thus, ETFs prevent investors from losing money if a single stock drops when the industry as a whole grows.

Another plus with ETF’s is the low trading fees. For example, Questrade offers free trades in Canada, and the many robo advisors provide low-cost investing in the US.

2. Invest in Real Estate

Regardless of one’s feelings toward the current US president, there is one undeniable fact – Trump made a fortune through real estate.

Throughout history, the most stable way to preserve and grow wealth has been real estate. Although companies and trends disappear over time, everyone needs a place to live.

Real estate has often been an investment tool of the wealthy. With the development of equity crowdfunding platforms, it’s become easier for anyone to invest in real estate. Therefore, whether you have millions or just a few grand, adding real estate to your portfolio is a great way to diversify.

3. Sell stock options on brands you value

Selling a “put option” on a stock is similar to placing a renter in a property you own – whether or not the value of the asset increases, you maintain a steady stream of income. Put options are generally a great way to diversify your investments because if done right, involve little risk. Be aware though that with little risk comes little reward.

A put option is simply the act of selling someone the option to purchase your stock at a given price. For example, if you own 100 shares of Stock A and it’s trading for $50/shares, you could sell an option that says you will sell those 100 shares for $55/shares at any point during the next 60 days.

If I purchase your option for $1/share, and the stock goes up to $60, I will buy those shares and sell them immediately – making $400. However, if the stock remains at $50/shares, I won’t buy Stock A – and it will remain in your portfolio along with the additional $100 that I paid you for the option.

Ultimately, if there is a stock that you want to keep long-term, and don’t mind occasionally selling/re-purchasing, put options are an excellent way to make ongoing income regardless of what direction the stock market fluctuates. A great tool for getting started with options trading is OptionsHouse.com.

4. Invest in startups

Thanks to the global growth of equity crowdfunding, investing in startups has become easier than ever. Imagine buying into Amazon when it was still a small online bookstore. Or think about the return you could have received if you invested in Facebook 10 years ago.

Although those opportunities are gone, there are many more that pop up every day – and you may just be lucky enough to invest in the next great one.

Of course, many startups fail – so never invest exclusively in startups. However, if you spread 5% of your investment capital across 10-50 startups, you won’t go bankrupt if they all fail – and you could walk away with a healthy return if just 1-2 of those companies take off.

5. Start your own business

Finally, one of the most successful investments that you can make is starting your own business. There’s a reason that most self-made billionaires are entrepreneurs – when you run the business, you enjoy the full fruits of your labor.

Starting a business doesn’t have to cost a fortune (and you should never invest anything in your own business that you aren’t okay losing). There are many stories of people who turned a $50 website into a million-dollar business. Why couldn’t you be next?

So, how will you diversify?

From ETFs to real estate, there are plenty of ways to diversify your investment portfolio. The key is to select a few strategies that interest you, do the needed research to understand how they operate, and then get to work.

By pursuing a consistent and intelligent diversification strategy, your wealth will continue to grow – helping you save what you need for retirement.

So, tell us, how do you invest? Do you think these are some viable options to diversify your investments? Comment below, we would love to hear from you.

Author Bio: Rob Erich writes about the digital nomad lifestyle on MoneyNomad.com and discusses investing for InvestmentZen.com. You can connect with him on Twitter: @MoneyNomadRob

See what Stocktrades.ca founder Dan Kent is investing in right now

Dan is on blossom with over 20,000 Canadian investors sharing insights and real-time trades:

Disclaimer: The writer of this article or employees of Stocktrades Ltd may have positions in securities listed in this article. Stocktrades Ltd may also be compensated via affiliate links in this post. Stocktrades Ltd will run advertisements on our posts. These advertisements do not represent an endorsement by us.

Dan Kent

About the author

An active dividend and growth investor, Dan has been involved with the website since its inception. He is primarily a researcher and writer here at Stocktrades.ca, and his pieces have numerous mentions on the Globe and Mail, Forbes, Winnipeg Free Press, and other high authority financial websites. He has become an authority figure in the Canadian finance niche, primarily due to his attention to detail and overall dedication to achieving the highest returns on his investments. Investing on his own since he was 19 years old, Dan has compiled the experience and knowledge needed to be successful in the world of self-directed investing, and is always happy to bring that knowledge to Stocktrades.ca readers and any other publications that give him the opportunity to write. He has completed the Canadian Securities Course, manages his TFSA, RRSPs and a LIRA at Qtrade, and has compiled a real estate portfolio of his primary residence and 2 rental properties, all before his 30th birthday.