As the age-old adage goes: “Don’t put all your eggs in one basket.” This message is simple and timeless – ringing true now more than ever in a world where nothing seems certain. Everyone more or less knows that diversification is the core of any well-planned savings and investment strategy.
Indeed, a worthy goal to have at any age, building a diversified portfolio should be a top priority early on, as it not just ensures financial security but acts as the primary defence against life’s unannounced challenges.
While achieving financial security through a fully diversified asset base is most definitely ideal, the truth is, for many, it’s a distant dream that’s riddled with complexity and confusion.
In this day and age, the gap between the financial world and our ability to navigate it is growing wider.
Unfortunately, too many of us end up learning the most important financial lessons through trial and error – which is often costly to recover from, let alone being practical or sustainable in any situation.
This naturally leads us to wonder: Where do we begin, and how can we attain financial security?
Just like every aspect of life, there’s always a starting point for everything. In the financial security arithmetic, this undoubtedly begins with living within your means.
The ability to efficiently cover expenses, pay bills on time, monitor spending, refrain when necessary, and above all regular saving should never be underestimated.
The act of simply being able to control and manage day-to-day and month-to-month finances is a sign of good, responsible habits, which is an important step in one’s financial journey. Once the basics of managing money are out of the way, individuals can focus on what’s known as financial cushioning.
Today, there are several avenues available in the market for one to invest in – ranging from real estate to mutual funds, bonds, sukuk, equities and the glitzy world of cryptocurrencies. These options are key in ensuring diversification. Available to invest in the short-term as well as the long-term, these options offer investors the opportunity to allocate funds while providing a flexible buffer.
But what most people forget is a lot of time and effort goes into understanding the fundamentals of these alternatives. Getting through the fine print and convoluted jargon adds to the perplexity, and it doesn’t end there – once these investments are incorporated into your portfolio, it is also essential to stay on top of it all.
Another key aspect to remember is that the nature of such investments does not eliminate the risk of investment losses and cannot guarantee a profitable investment return. They are subject to market-wide risk induced by inflation, rising interest rates, and other global economic factors – all of which we are witnessing this year.
According to economist Nouriel Roubini, who predicted the 2008 financial crisis, a long global recession awaits at the end of 2022 that could last all of 2023, showing a sharp correction in the S&P 500. The writing is already on the wall with the US Fed’s interest rate hikes. These hikes have forced investors to review the effect of higher rates on their portfolio and the best way to adjust saving, spending and investing strategies.
Against this backdrop, there is an understandable scepticism for investing, but a robust savings plan coupled with the support of experienced fund managers and financial advisors may be the answer. Advisors can help individuals gauge their risk appetite and offer customised solutions designed after factoring in income, expenses, liabilities and personal wealth goals.
At National Bonds, our experts can help secure the ideal saving option depending on your age group, income tier and what you’d like to save for – be it for your home, education, retirement and much more for short, medium or long-term horizons.
The bottom line is we all need a little diversification to ensure that our money is being put to better use. But if in doubt, take the time to ask, assess and act because that’s the only way we can put the risk and reward into context and make better financial choices.