Ways To Build A Portfolio You Won’t Lose Sleep Over

 Ways To Build A Portfolio You Won’t Lose Sleep Over

Last year when COVID-19 hit our shores, it shook up the markets in ways not seen since the Great Recession. As the country shut down, the stock market lost a third of its value.
Millions of investors lost sleep as they saw their portfolios shattered. They followed Wall Street’s diversification strategy. Wasn’t diversification supposed to protect them against losses?
 
Wall Street’s idea of diversification is to spread assets among stocks across multiple industries to spread risk. Diversification may minimize risk when things are good, but what happens when the entire market nosedives?
 
Few industries are spared as the Great Recession and the pandemic-induced downturn demonstrated. Diversification won’t save anyone when the whole house is on fire.
 
While investors who were heavily allocated toward Wall Street and workers who lost their jobs lost sleep, a segment of investors were calmly riding out the storm. How did these investors build their portfolios to avoid the headaches and heartache everyone else was experiencing?
 
Many investors who rode out the Great Recession were able to ride out the latest market turmoil because they built their portfolios and approached diversification differently than average investors.
 
Not only did these investors maintain their portfolios’ value, but many were also able to sustain income not dependent on their jobs. This double layer of protection of asset preservation and income maintenance is how these investors don’t lose sleep over market volatility.
 
These are the three ways to build a portfolio you won’t lose sleep over:
 
Diversify in assets with less volatile cycles.
 
The ultra-wealthy gravitate towards assets not correlated to Wall Street and the broader markets. Wall Street and the economy as a whole are highly connected. As one goes, so does the other.
 
This is not true with all assets. Certain assets such as real assets and private investments (e.g., private company equity or debt) have little correlation to the broader markets. Building a portfolio through alternatives to Wall Street will insulate your assets from volatile cycles and give you the peace of mind to ride out market turmoil.
 
Invest in assets unaffected by mercurial investor sentiment driven by the news and social media.
 
Public equities are highly affected by investor sentiment because they’re highly liquid. Stock positions can be liquidated within seconds. The stock market can lose a fifth of its value in a single day because of this liquidity. Why tie your portfolio to such an unsteady market?
 
Savvy investors build their portfolios with illiquid assets. They are happy to tie up their capital for years to shield their wealth from manic market volatility driven by the news, social media, and talking heads.
 
Investments in real assets and private companies shield portfolios from extreme portfolio declines because of their illiquid nature.
 
Diversify across multiple markets and asset classes.
 
The goal of diversification by ultra-wealthy investors isn’t to minimize risk. It’s much more sophisticated than that. The goal of diversification for ultra-wealthy investors is to insulate their portfolio from downturns and preserve income.
 
That’s why elite investors seek out passive income streams across multiple geographic markets and asset classes. One market or asset class may suffer a dip, but not all of the markets and asset classes will move in the same direction. Therefore, a dip in one position will be compensated by the continued income stream provided by the other assets in the portfolio.
 
The ability to preserve income through a multi-pronged investment strategy is how the ultra-wealthy can continuously build wealth and preserve their portfolios as well as their peace of mind through any environment.
 
Building your portfolio, in the same way, will ensure not losing sleep over future downturns.

About The Author

John Turley
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