While the goal for any astute investor is to leverage their hard-earned income into wealth-building opportunities, another aspect many take for granted is “simply” protecting that earned income.
Historically, as we have experienced before (more recently over the past few years), particular market conditions can wipe out years and sometimes even decades of gains accumulated by our investments.
In 2020, hundreds of millions globally saw their portfolio values decline dramatically due to the “black swan event” (an unforeseen, unexpected event with significant economic and financial effects). It was common to see investors report 50%+ losses in that occurrence.
So does this mean that we should all avoid the markets altogether?
We don’t believe so because, in our opinion, investing is the true form of “working smart, not hard.”
However, to us, maintaining a balanced portfolio through multi-asset investing could possibly be the solution.
What is Multi-Asset Investing?
Multi-asset investing simply means diversifying your capital across various asset classes. An asset class is a sector or industry to which an investment relates.
For instance, stocks in specific companies are one asset class, while real estate is an asset class by itself, and precious metals such as gold and silver are grouped in their own as well.
There are many more asset classes like farmland, bonds, cash, and in some instances, insurance policies. All of these classes, other than stocks, are known as “alternative investments.”
They gained the name “alternative investments” because stocks are considered the primary investment, and anything secondary to them is an alternative.
Why is it so Popular?
Multi-asset investing has become popular over time, thanks to many reasons.
For one, it allows investors to venture into other opportunities that may fit their personality, likes, or personal interests more than just stocks.
Different asset classes also offer their own unique benefits. For example, there are specific tax deduction benefits one can take advantage of by investing in commercial real estate that is not provided in other asset classes.
The same applies to certain life insurance policies where the owner can treat it as their own personal bank and take out loans against it. In this instance, the policy’s owner is both the provider and borrower of the loan.
Finally, and what may be the primary reason investors flock to multi-asset investing is the balance it provides.
Shelter From the Storm
While no asset class is free from volatility (especially during black swan events), there are some asset classes, however, that are not affected during such times as bad as others are.
Precious metals, for example, have always been considered to be a “hedge” against high inflation, which usually occurs during times of economic turmoil. Hedge meaning protecting or moving against.
In scenarios when inflation is running rampant, it’s common to see stocks underperforming while gold and silver are beating the market (outperforming the stock market in gains.)
Commercial real estate is also an asset class that tends to perform well regardless of economic conditions but can be exceptionally comforting during market downturns due to its passive yet consistent income distribution, which generally occurs monthly.
In short, if you are strategically diversified, then when one asset class underperforms, in theory, the others should help stabilize your portfolio.
The concept of Multi-asset investing sounds promising, and indeed it is; unfortunately, not many can capitalize on the full benefits of this strategy as it takes time, experience, and expertise across various sectors, which, unless you are a dedicated professional, is not feasible for most.
In our opinion, balance is excellent, but it can be hard to achieve for most – but not to worry, because that’s why we’re here.
Get in touch with Finsbury Wealth to discuss if this would be a good opportunity for us to help you diversify your portfolio.