As parents, we want our kids to experience as much of this world as they (safely!) can—and that’s why we encourage them to try new things. Whether they are trying a new food, a new hobby, or a new extracurricular activity, we support them however we can. If they decide the new food, hobby, or other activity isn’t for them, we know that they will have, at the very least, grown from the experience. And we never want them to miss out on what might become a lifelong source of joy.
The same should go for our portfolios. Traditionally, a 60/40 mix of stocks and bonds/xed-income assets has been suggested. But while this 60/40 mix has been around for decades, its time in the spotlight may be over. As Mark P. Cussen wrote on August 12, 2020, for Investopedia, “Some experts are now saying that a well-diversified portfolio must include more asset classes than just stocks and bonds…. These experts feel that a much broader approach must now be taken in order to achieve sustainable long- term growth.”
Over at Forbes, Kate Stalter wrote on March 13, 2021, “Low yields and low expected returns mean bonds will not contribute to overall performance, nor play their traditional role mitigating the risk of stocks. [In a January webinar, investment rm] BlackRock warned that the 60/40 portfolio is likely to generate a lower return that it has over the past decade.”
If our children never get out into the world and experience new things, their growth may become stagnant. What’s familiar isn’t always what’s best. And much as we encourage our children to safely broaden their horizons and maximize their life experiences, we may also need to occasionally push our portfolios beyond the familiar—in this case, the traditional 60/40 mix—in order to expose them to a greater and more diverse mix of assets that can help lower overall risk and increase growth potential.
You can try something new without taking big risks.
As Artem Milinchuk wrote in his April 28, 2021, article for Forbes, “Many [individuals] are tired of hair-raising market volatility.” Diversification allows you to build a portfolio using asset classes that don’t necessarily respond in the same way to the same set of market factors as stocks and bonds. Many experts and resources can help you decide which assets are right for you, but as the U.S. Securities Exchange Commission says in its Beginners’ Guide to Asset Allocation, Diversification, and Rebalancing, “The process of determining which mix of assets to hold in your portfolio is a very personal one.”
Whether you have a high or low tolerance for risk, you can find alternative asset classes to choose from.
Real estate, for example, has been a popular way of increasing and passing on generational wealth. If you live in a more rural area, you might consider farmland as an alternative asset. Even ne art can be considered. The idea is to explore new and interesting options before deciding which assets are right for your portfolio.
Trying something new can also mean trying something old.
While there are certainly new and shiny alternative assets like cryptocurrencies for you to choose from, there are also assets you may not have considered that have been around for literally decades—or even centuries. Platinum and palladium, for example, have made big moves in the last few years and show signs of having promising futures.
Gold, of course, remains the precious metal of choice for many individuals. And it’s easy to see why: For literally thousands of years, humankind has held gold in high regard as a personal asset, and gold has a long track record as a safe-haven asset and store of wealth. Perhaps that’s why we return to it again and again when faced with an uncertain future and why gold is so often referred to as another excellent form of generational wealth.
But all precious metals, just like so many other alternative assets, can be passed down from parent or grandparent to child or grandchild. There is no one right answer when it comes to generational wealth or building a portfolio. That’s why diversification is so important and why it can be so helpful to explore new and different assets.
When it comes to diversification, one thing you don’t want to do is wait.
I know much of this can feel overwhelming, but it’s our responsibility to ensure that our retirements and our loved ones will be as comfortable as possible. No one else is going to do it for us, and the longer we wait, the more opportunities we may miss. I know that the more my children can experience now, the more time they’ll have to learn and grow from those experiences. And if they find something they love, I want them to have as many years to enjoy it as possible.
The exact same goes for our portfolios. As we’ve said before, diversification is very personal. That means you need to be the one to ensure that your portfolio is diversified with the right mix of assets to t your unique situation. And the sooner you can diversify, the more time you’ll give your portfolio to benefit from those choices.
There’s a world full of opportunities just waiting to help increase our growth potential—but we have to be the ones to take the first step.