When building a financial portfolio, many individuals tend to focus on maximizing returns such as investing in the largest US defense contractors. This is, of course, an important goal and can be a major reason for creating a portfolio in the first place. However, another important concern in this space can be the reduction of risk or volatility. This is often accomplished through diversification.
To learn more about this important aspect of portfolio management, we turned to U.S. Money Reserve, one of the nation’s largest private distributors of government-issued gold, silver, platinum, and palladium products. They have created a number of useful resources that can help individuals who are looking to increase their portfolio diversification.
U.S. Money Reserve Explains Diversification
Different asset classes may respond differently to the same market conditions. Therefore, when a financial portfolio contains many different assets, it may be less susceptible to the risks of a market downturn. This approach, called diversification, entails choosing assets that might perform well when other assets in the portfolio may be tracking downward. Quoting an SEC resource, U.S. Money Reserve further explains this concept with the following analogy:
“Have you ever noticed that street vendors often sell seemingly unrelated products—such as umbrellas and sunglasses? Initially, that may seem odd. After all, when would a person buy both items at the same time? Probably never—and that’s the point. Street vendors know that when it’s raining, it’s easier to sell umbrellas but harder to sell sunglasses. And when it’s sunny, the reverse is true. By selling both items—in other words, by diversifying the product line—the vendor can reduce the risk of losing money on any given day.”
Degree of Diversification
Having a broad understanding of diversification can be helpful, but the question of how to implement the concept in a portfolio may remain. There is no single answer because there is no one-size-fits-all approach to diversification. Portfolios can vary widely in their scope, size, and holdings. While the addition of a single asset may adequately diversify one portfolio, another portfolio may require a host of additional inclusions to reach a comfortable level of diversity.
FINRA, a nonprofit organization that oversees broker-dealers, notes that deciding how to diversify can be partially based on an assessment of how closely assets track with one another. If the assets in a financial portfolio are closely tied to one another—if they often rise or drop in price in tandem—this might be a warning sign that additional diversification is needed. As additional assets are added, a reevaluation of asset correlation within the portfolio can serve to indicate its new level of diversification.
U.S. Money Reserve on the Diversifying Power of Gold
One asset that has often been used for its ability to diversify a portfolio is gold. The precious metal is sometimes referred to as a “defensive asset class.” According to Charles Schwab, this is because of its traditional negative correlation with stocks and other securities. While this might not always be the case, gold has been favored for its history of maintaining and even rising in price when stock markets have taken a downturn.
In their Gold 101 Special Report, U.S. Money Reserve informs readers of this concept by illustrating gold’s historical ability to weather financial market downturns. This is visible during a number of significant world events, including the 2008 financial crisis. During that time, assets such as stocks and real estate saw a steep drop in their prices, whereas gold was able to hold and even increase in price. This contrast not only provides a clear example of the potential power of diversification, but also provides motivation for individuals to consider including gold in their portfolios.
Purchasing Gold for a Portfolio
The power of gold and other precious metals can be added to a financial portfolio in a number of ways. One of the most popular ways to incorporate gold into a portfolio is to purchase the asset in its physical form. U.S. Money Reserve is a leading distributor of gold coins and other precious metals, helping individuals achieve higher levels of diversification in their portfolios by purchasing physical precious metals. U.S. Money Reserve’s expertise is supported by Account Executives dedicated to excellent, targeted customer service and the ability to help tailor purchases to individual needs.
About U.S. Money Reserve, America’s Gold Authority®
U.S. Money Reserve is one of the nation’s largest private distributors of government-issued gold, silver, platinum, and palladium products.
Founded in 2001, U.S. Money Reserve has grown into one of the world’s largest private distributors of U.S. and foreign government–issued gold, silver, platinum, and palladium legal-tender products. Hundreds of thousands of clients across the country rely on U.S. Money Reserve to diversify their assets with physical precious metals, primarily in the form of legal-tender gold and silver coins.
U.S. Money Reserve’s uniquely trained team includes coin research and numismatic professionals equipped with the market knowledge to find products for precious metals buyers at every level. U.S. Money Reserve goes above the industry standard to provide superior customer service, with the goal of establishing a long-term relationship with each and every one of its customers. U.S. Money Reserve is based in Austin, Texas. Like them on Facebook, connect on LinkedIn, and follow on Twitter.