In this article, you will learn how to:
- Diversify your portfolio to help create wealth in down markets while capitalizing on market upswings.
- Allocate across multiple investments and maintain a long-term investment perspective.
- Take age and goals into account to determine your optimal diversification strategy and risk tolerance.
- Benefit from financial advisors who can help create personalized diversification plans aligned with your needs.
Whenever the stock market takes a dive, it’s a natural reflex to want to take drastic action. Dump the investments–don’t lose it all, is the reflexive mindset. Having that initial reaction isn’t a problem, as long as a person can then take a step back and reset. Putting your money into a growth investment seems okay when times are good. Sometimes these investments can take a short-term loss if the market has a few off days. The goal is to avoid the classic trap of selling low and buying high later. Timing the market usually costs people money and only builds frustration.
Is there some way of reducing losses in a market slump, while still building wealth over time? Yes, and everyone can do it. It’s called portfolio diversification.
What is Portfolio Diversification?
Many people have heard of diversification and think it simply means to not depend on one investment; that it’s too much risk to take. This is part of the definition; another part is adding a long-term mindset to your investing, along with making your investments work for you in the short-term, so you can avoid fixating on a few wild swings of the market’s pendulum.
We’ll review effective strategies to align your portfolio to ride the up waves, and better tolerate, or even maybe profit, from general downturns. The long-term investing process we’ll discuss includes allocating your current funds to multiple investments1, and then creating a monthly savings program that adds to your diversified
Investing That Fits Your Goals
Diversification is a simple concept, and can provide you with a roadmap for your present and future investing. What’s interesting about diversification is you’re likely already doing it in some form, so it won’t necessarily be something completely new. If you’re a homeowner, you’re diversifying by owning real estate. If you own various physical items, such as coins or an art collection, that’s another form of diversification.
Along with your investment research (which your wealth management professional can assist with), diversifying your portfolio is one of the best things you can do to protect yourself now and grow your assets for the future. The best things about diversification: 1) anyone can do it, and 2) each person’s diversified holdings can be set to the investor’s needs2, interests, and risk tolerance.
So, whether you’re a 25-year-old who potentially has years to build growth, or a 60-year-old who wants to optimize their portfolio so that it will generate monthly retirement income, diversification can work for you.
First Steps to a Diversified Portfolio
A financial consultant’s skill at listening to what your goals are, will help you set up the structure for your diversified portfolio. If you have investments already, and they are getting battered a bit in a down market, it’s good to remember why you chose them in the first place. It’s important with most investments to take a longer view3 so you can judge performance across a one year, three-year, five-year and even ten-year timeline.
Investing timelines vary and have changed over the years4. This is the perfect point to bring in your financial specialist, who can help you plan for near-term needs and longer-term goals.
Here are some examples of how that can work:
- You want to go back to school. You would like to set up an investment account to fund your return-to-school tuition for one year from now. With so many current needs, you’re not sure if you can save for it. You consult your financial advisor, who recommends reallocating some savings you have into a relatively stable, but growth oriented investment, that you can add to every week. This will help you get the account established immediately, and you will see the account grow each time you deposit money into it.
- You’re ready to start a retirement fund, and heard there may be a way to “catch up” with contributions. You’re worried that you’ve waited too long to start your retirement fund. Your financial professional can discuss with you the special contribution rules that take effect as you age5, that let you put aside more money per year in IRAs and other investments, above the normal yearly contribution level. Your advisor can help you start saving now and alert you at what age those rules kick in so you can make those additional contributions to your retirement account.
Planning Instead of Panicking
A common issue that people have is finding money to invest in the first place. When reviewing your finances, see where you can reallocate some spending into savings6. Your wealth management professional can help you plan this out, as sometimes it can be helpful to have another perspective on saving money for investing. Saving even an extra $25 a week on something that you might not miss can help.
These new savings can be the start of your monthly investment plan, along with reassigning some of your current portfolio to a mix of investment types. So, if you’re heavily into stocks right now, your advisor can show you opportunities that can balance your holdings, such as bonds and mutual funds.
Optimizing Your Portfolio to Perform Over the Long Term
It’s a natural human reaction to worry when our hard-earned money seems at risk. Markets have always seen highs and lows and will continue to do so. A financial pro knows how to take a balanced view, to help ensure optimization of your portfolio7. Your portfolio should be diversified, while not getting bogged down with mathematical models that don’t align with your goals.
A diversified portfolio can be created to fit your life. It doesn’t have to be complex, and can include several investment categories, such as:
- Cash savings. If you need short-term liquidity, even the experts say cash is a good store of value8. Also, when you are tempted to “sell it all” in a panic, instead you can withdraw a small portion of your cash, to satisfy that panic urge, but leave the remainder invested for when the market settles down and goes up again.
- Stocks
- Bonds
- US investments
- International investments
- Precious metals (which can be invested in through mutual funds and other securities, if you don’t want to hold or store physical metals)
- Annuities (please see our section on these below)
The above are but a few investment categories. An advisor can show you the reasons why each category could be a potentially good fit for you, along with the potential risks. Together, you can look at how these classes as a whole and certain individual companies within them, have performed during up and down markets.
Diversify with Annuities
Speaking of diversification, annuities can provide you with yet another option to help grow your retirement savings9. Your financial advisor can recommend an annuity for your specific situation. Annuities can be helpful in retirement income planning because they offer yet another way to defer income, and can be especially useful if you have maxed out your contributions to your IRA, SEP, or 401(k).
These three annuity types (and again, your financial professional can recommend varieties of these, or other types to fit your needs) offer important features that provide income streams for your retirement:
Fixed Annuities
Fixed annuities can be a good choice if you prefer stability. This annuity provides a set interest rate for a specific period. You will know exactly how much you’ll earn every year. When the economy seems volatile, this annuity can help give you peace of mind. But wouldn’t you get similar performance with a CD or a regular savings account in a bank or credit union? Fixed annuities often offer better interest rates, and another benefit is that with a fixed annuity, your money grows tax-deferred. So, you don’t have to pay taxes until you withdraw it or receive payments. For a steady, dependable income in retirement, minus the gyrations of the stock market, a fixed annuity could be right for you.
Variable Annuities
If you want to take a bit more risk to perhaps reap bigger rewards, a variable annuity could work for you. With this type, you can invest your money in mutual funds or other assets within the annuity’s underlying investments. If the market does well, you could see higher returns, boosting your retirement income. Your earnings grow tax-deferred; so you pay no taxes until you withdraw. You can later turn your investment into a steady income stream tailored to your needs. Please note that there is the possibility of losing value if investments decline. But if you would like to pursue growth potential, variable annuities can help your money stretch further to fund a revenue stream. Some of these annuities can provide you with a Guaranteed Minimum Income Benefit.
Indexed Annuities
Indexed annuities are a compromise between safety and growth. They provide a guaranteed minimum interest rate. Your returns can rise based on how a market index, like the S&P 500, performs. This gives you a possible chance at higher earnings without full market risk, as the amount of participation with the index is capped. An indexed annuity also provides tax-deferred growth. If you’re worried about outliving your savings, and want some market upside, this could be a good annuity for you.
More benefits of annuities: Some annuities are set up to provide a guaranteed income in retirement, and can also be structured to provide payments to your beneficiaries. We’ve provided a brief overview to help you learn about the general features. Your Moore’s Wealth Management financial professional can guide you in selecting an annuity that fits your retirement goals.
Key Takeaway: Everyone’s risk tolerance is different. Your goal is to create a mix of investments that can work for you now, and be adjusted as you age, and your goals change. Remember that historically, the stock market has always come back from tough periods10, to rise again. Your strategist will help you chart a course that provides you with a combination of assets that have historically performed well in the long-term.
Trust Moore’s Wealth Management for Your Financial Plan
Moore’s Wealth Management offers years of experience partnering with clients to create investment portfolios and manage wealth that is aligned to individual goals. We don’t provide cookie-cutter advice. Moore’s knows that while people’s goals can differ, diversification can work for everyone.
Contact us today for your complimentary or free, no obligation evaluation. We’ll listen to your thoughts and your plans for now and for your future. Our financial professionals take that information and combine it with our knowledge to help you create your wealth management plan. Give us a call today, (770) 462-8422. It’s free to meet with us for your initial consultation. We believe you’ll love the peace of mind a solid plan gives you in every market.
All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. This material is provided as a courtesy and for educational purposes only.
The views expressed herein are those of the author and do not necessarily reflect the views of Steward Partners or its affiliates. All opinions are subject to change without notice. Neither the information provided, nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future results.
The investments and services listed may not be appropriate for all investors. Steward Partners recommends that investors independently evaluate investments and encourages investors to seek the advice of a Financial Advisor. The appropriateness of a particular investment will depend upon an investor’s individual circumstances and objectives.
Diversification does not assure a profit or protect against loss in a declining market.
Steward Partners, its affiliates, and its Financial Advisors do not offer tax or legal advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. You should consult with your tax advisor for matters involving taxation and tax planning.
Insurance products, including annuities, are offered ln conjunction with Steward Partners licensed insurance agency affiliates. Annuity contracts contain exclusions, limitations, reductions of benefits and terms for keeping them in force. Protection and guarantees are based on the claims-paying ability of the issuing insurance company. Annuities are long-term investment vehicles designed for retirement purposes.
Variable annuities are sold by prospectus. Investors should carefully consider the investment objectives and risks as well as charges and expenses of variable annuities including the underlying portfolios before investing. To obtain a prospectus, contact your Financial Advisor. The prospectus contains this and other information about the investment. Read the prospectus carefully before investing.
Before investing, remember that fixed annuities come with surrender charges for early withdrawals or policy cancellation. All withdrawals reduce your annuity’s value and are subject to ordinary income tax. Additionally, withdrawals made before age 59½ may incur a 10% federal tax penalty.
For variable annuities you may encounter different types of fees, including insurance charges (which cover the guarantees provided by the insurance company) and surrender charges (applied to early withdrawals or policy cancellations, varying with the policy’s duration). Additionally, investment fees compensate for the management of the underlying investment options, and if you choose them, there are also fees for optional living or death benefits that cover their respective guarantees. Any withdrawals you make will reduce the value of your annuity. Taxable amounts withdrawn are subject to ordinary income tax, and if you’re under the age of 59½, you may also face a 10% federal tax penalty. The performance of your underlying investment options isn’t guaranteed and is subject to market fluctuation, meaning the contract value can be more or less than the premiums you paid, and it’s possible to lose money. Finally, withdrawals will directly reduce your death benefit amount in proportion to how much the contract value was reduced.
For fixed indexed annuities, there is the potential for charges including withdrawal or surrender charges if you access funds early or cancel the policy during its guaranteed period. Typically, withdrawals exceeding 10% of your account value in a given year during the initial guaranteed period may trigger these charges. Remember, any withdrawals will reduce the overall value of your annuity and are subject to ordinary income tax. Additionally, withdrawals made before age 59½ may incur a 10% federal tax penalty.
This article may contain links to articles or other information that may be on a third-party website. Steward Partners does not imply an affiliation, sponsorship, endorsement with/of the third party or that any monitoring is being done by Steward Partners of any information contained within the linked site; nor do we guarantee its accuracy or completeness. Steward Partners is not responsible for the information contained on the third-party web site or the use of or inability to use such site.
References:
1Bouranova, Alene. (March 18, 2025) “As Markets Turn Volatile, What Should You Do with Your 401(k)?” BU Today. Retrieved April 6, 2025.
2Lioudis, Nick. (July 17, 2024) “The Importance of Diversification”. Investopedia. Retrieved April 6, 2025.
3Busser, Andy. (May 1, 2023) “5 Tenets Of Successful Long-Term Investing”. Forbes. Retrieved April 6, 2025.
4Goldman, Gene. (December 3, 2024) “The Art Of Long-Term Investment Strategies In A Short-Term World”. Forbes. Retrieved April 6, 2025.
5IRS.gov. (no publication date provided) “Retirement topics – Catch-up contribution”. IRS.gov. Retrieved April 6, 2025.
6Investor.gov. (no publication date provided) “Savings Goal Calculator”. U.S. Securities and Exchange Commission. Retrieved April 6, 2025.
7Bloch, Brian J. (December 22, 2024) “Naive Diversification vs. Optimization”. Investopedia. Retrieved April 6, 2025.
8Arnott, Amy C. (March 20, 2024) “Top 10 Things to Know About Building a Diversified Portfolio”. Morningstar. Retrieved April 6, 2025.
9Hayes, Adam (November 22, 2024) “An Overview of Annuities”. Investopedia. Retrieved June 19, 2025
10Fredlick, Emilia. (April 1, 2025) “What We’ve Learned From 150 Years of Stock Market Crashes”. Morningstar. Retrieved April 6, 2025.
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