Entrepreneurs understand the significance of investing, and while putting money, effort, and time back into their start-up business is crucial for growth, we must also secure our future. If we can’t support ourselves at the end of the day, how can we expect to continue managing a business and breaking into the market?
As a result, creating and growing your investment portfolio throughout your life is essential, and that goes for everyone and not just entrepreneurs. However, the vast majority of people hop onto the stock market and cling onto individual stocks alone, thinking that these selected companies will be their only saving grace.
But what most people fail to realize is that this limited trading strategy is doing them more harm than good.
You’re at the Mercy of Volatility
For starters, sticking to individual stocks puts you at the mercy of market volatility. It is basic knowledge that the stock market doesn’t just go one way alone. It moves both up and down and can trend for quite some time. And if you’re one of the unlucky people who bought at a bullish trending market already waiting for a reversal, be prepared for the worst.
An excellent example would go to Tesla’s stock plunging by 34% in one week, just over two weeks ago. And from $500 shares, it came crashing down to the $330 levels. So, imagine buying at around $500 only to have your investment be cut down by almost 50%.
Anything Can Happen
Secondly, you can’t predict the future, and you don’t possess any magical cognitive abilities that allow you to bend the market to your will. Anything can happen, and all it takes is for one piece to start toppling over until it causes a domino effect. Sure, you might catch once in a lifetime opportunities like Kodak’s extreme price jump, but your investment plan shouldn’t depend on miracles.
The market can be a terrifying place if not respected, and if you’re not careful with your investments, all it takes is for a major news event for you to make the cover of Wall Street Bets.
What You Should Do Instead: Diversify
So, what should you do instead?
The answer is diversification. You want your portfolio to hold different investments, in varying markets, to safeguard your ROI and ensure the safety of your money. It all falls back to the age-old saying, “Don’t put all your eggs in one basket.”
And for the newbie entrepreneur, here are some of the investments you should research and look into:
#1 Index Funds
We can’t deny that stocks remain an all-time favorite with any investment plan, especially when you look at titans of the game like Warren Buffett. Instead of individual stocks, we suggest that you invest in index funds that carry less risk and offer greater returns.
Essentially, an index fund is a portfolio of stocks, which means your investments will cover a wide array of companies with just one share. Plus, these index funds include the most prominent companies in the S&P 500, Dow Jones, and many more. And overall, if one company in the portfolio is in a downtrend, the rest of the investments can cover for any fall in price so that everything balances out in your favor.
#2 Real Estate
Likewise, you don’t want your entire portfolio concentrated on index funds and mutual funds, and one great place to invest and diversify is with real estate. Houses, apartment units, multi-family homes, and all manner of properties make great investments because they tend to appreciate over time as the location improves. In doing so, it allows your money to grow and gives you reliable assets that are also income-generating.
You also get options on how you wish to utilize real estate properties. From creating rental income to cash-out-refinancing a home mortgage, you can adjust your investing methods to suit your risk appetite.
#3 High-Yield Savings and Retirement Funds
Lastly, we can’t forget the simplest yet very effective method of keeping your money in high-yield savings accounts and safeguarding yourself with retirement funds. And while they don’t offer the most outstanding returns, they have little to no risk and can function as a cushion and for emergencies.
And on top of giving you peace of mind, retirement funds like a 401k and Roth IRA can offer you tax benefits in the long-term, which provides you with a pretty penny to live off once you decide to give hardcore hustling a rest in the future.
Invest Back into Yourself
The critical takeaway is to be careful with risk. We won’t deny that a single stock can outperform, but that comes with a considerable amount of risk. So, instead of putting your investments in very vulnerable places, we strongly suggest it’s better to be safe with your strategy.
And at the end of the day, don’t forget to invest back into yourself and be content with the portfolio you’re building.