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Reducing Financial Stress Through Diversification

AngelaRoberts

Written by Angela Roberts

Jul 7, 2021

We all want to retire comfortably and live our best lives on the way to retirement. But as we all know, having a retirement portfolio means living with a certain amount of financial stress. If you’re a news junkie like me, you may find yourself watching the markets every day—and if you’re not careful, all those little market ups and downs can lead to a lot more worrying than is necessary.

Financial stress can even affect your health. According to HelpGuide.org, financial stress can lead to issues like insomnia, depression, anxiety, relationship difficulties, and more.

But there are steps we can all take to ensure that we experience as little financial stress as possible as we work toward retirement and, hopefully, a healthy and happy life.

Diversification is key to reducing your financial stress.

As I’ve said many times before, diversification is all about reducing risk. By allocating parts of your portfolio to multiple asset classes—and even multiple asset types within those classes—you expose yourself to a smaller amount of the risks associated with each asset class. If the market makes a big move in one asset class, the others may not be as strongly affected, which allows for more overall stability in your portfolio.

For example: On June 25, 2021, Reuters reported that $3.6 billion in cryptocurrency disappeared when two brothers who ran a crypto exchange in South Africa disappeared. And on June 27, 2021, Fortune reported that Binance Markets Limited, the world’s largest cryptocurrency exchange, was banned in the United Kingdom by the nation’s Financial Conduct Authority, in what Fortune calls “one of the most significant moves to date by a regulator amid a global crackdown in the crypto industry.”

If your portfolio were mostly made up of cryptocurrencies, this news would be incredibly stressful. But with a high level of diversification, you could take comfort in knowing that even if you had some money in cryptocurrencies, your entire portfolio wouldn’t be at risk. Better yet, if you had diversified, you may have put money into assets that act conversely to cryptocurrencies, allowing for balance or even growth potential if the crypto market were to experience another downturn.

Gold is a time-tested store of wealth that tens of millions of Americans use to diversify their portfolios.

When it comes to alternative assets—those that folks turn to when they seek to diversify with more than paper-based assets like cash and stocks—I believe in the growth potential of gold and other precious metals. These assets have historically acted conversely to drops in the stock market, and precious metals have a much longer history as an asset class than cryptocurrencies, allowing us to see evidence of gold’s behavior during a variety of market situations. Best of all, gold is a tangible, physical asset—making it far harder for a pair of brothers to disappear alongside $3.6 billion worth of the metal.

In a 2015 interview with the American Psychological Association, psychologist Dr. Linda Gallo said that “it’s important to set aside time regularly for healthy and relaxing behaviors because…when stress arises, often we let go of the behaviors that could help us deal with it most effectively.”

I couldn’t agree more. It’s important to take steps to reduce stress, and when it comes to reducing financial stress, I believe that one of the best steps you can take is to diversify with precious metals.

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