Financial manager Nils Larsen, who has helped countless people grow their wealth, is going to explain the importance of risk diversification.
In regards to investing, risk diversification is one of the most important concepts to understand, especially for newer investors. Fortunately, financial manager Nils Larsen is going to offer some insights on risk diversification.
“Risk diversification refers to efforts to manage risk,” Nils Larsen explains. “You can spread money into different assets, industries, sectors, and the like. By spreading your wealth, you make yourself less vulnerable to setbacks in a particular industry or market.”
Take tech stocks, for example. In recent years, tech stocks have enjoyed huge gains. By some measures, such as Price/Earnings ratios, tech stocks may have become speculative. This means investors may be thinking more about future earnings rather than current performance, and are thus “speculating.”
As a result, many tech stocks may present a higher risk than blue-chip stocks in other sectors. While you may want to invest some of your wealth in hot tech stocks, you should also consider investing part of your wealth in other areas, such as food processing and fast-moving consumer goods. These latter two sectors are often lower risk and even recession-resistant.
“Risk diversification comes in many forms,” financial manager Nils Larsen says. “Industry diversification is smart. Even if you love tech or automobiles or whatever, invest elsewhere. Not sure what to pick? Consider an Exchange Traded Fund that is tied to a stock index.”
Different assets may also offer different risks. Government bonds from large, stable countries, like the United States and Germany, are often considered low risk. On the other hand, options are considered high risk, partially because they have expiration dates that make them worthless beyond a certain date.
“It’s smart to park your wealth in different assets, including stocks, bonds, real estate, and more,” Nils Larsen says. “One of the most important parts of my job as a financial manager is helping clients diversify their portfolios to maximize upside while mitigating risks.”
Nils Larsen Discusses Safe Haven Assets
Worried that a recession could strike? Want to plan or at least prepare for the next Great Depression, should one ever come? If so, understanding safe-haven assets is a smart move.
“Safe-haven assets are assets that are normally more resistant to economic downturns,” financial manager Nils Larsen explains. “If markets suddenly sink, these assets may hold their ground or even gain value.”
The traditional safe-haven asset has been gold. In the past, as markets sank, some investors moved their wealth to safe-haven assets like gold. Some industries, like food processing, are also seen as more recession-resistant than say automobile manufacturing.
“Safe-haven assets can still be high risk, so they’re not necessarily safe investments,” Nils Larsen, manager points out, “but if you invest in them at the right time or use them to diversify, they can lower risks. At the least, every investor should be aware of safe-haven assets.”