Choose an account type

Diversifying Your Portfolio: Why Now Might Be The Time To Take The Leap

April 16, 2020

The recent volatility in the public markets has many investors reeling. If you’ve spoken with your financial advisor recently, you’ve likely heard something along the lines of “a long-term disciplined approach to investing with a well-diversified portfolio is the best strategy for financial success”. It’s also probable that your advisor has suggested an investment portfolio consisting almost entirely of mutual funds. Some funds will invest primarily in a myriad of stocks, while others will expose you to fixed income securities such as bonds and CDs. Based on your investing time horizon and risk you’ll receive a recommended “target asset mix”. This mix is usually illustrated as a pie chart that provides what your advisor believes is an appropriate mix of equities, fixed income securities, and cash. By purchasing multiple investments that correspond to each sliver of the pie, you’re considered by many to have a well-diversified portfolio. In other words, you’re ascribing to the age-old adage of not having all your eggs in one basket.

Once you’ve determined your ideal target asset mix, you or your advisor is faced with the decision to choose between active or passively managed mutual funds. An actively managed fund is one where the manager attempts to outperform the market by buying and selling different investments based on their investment strategy. A passive fund, often referred to as an index fund, simply tries to mimic a specific index such as the S&P 500 by purchasing most of the holdings in the index.

With actively managed funds, you’re betting that a manager is skilled or lucky enough to outperform the market consistently – a statistically unlikely feat to accomplish. With index funds, you aren’t even attempting to outperform the market. In fact, if you had owned all 505 stocks that comprise the S&P 500, seemingly enough companies to be diversified, you would be down 12.35% YTD ending March 31st.

While NuView clients and advisors who refer clients to NuView certainly don’t eschew the diversification that mutual funds can provide, they don’t believe they’re the sole component of an all-weather portfolio.  They believe a crucial component of shielding their portfolio from the volatility of the market is missing. What do you do to mitigate the risk of investing in the public markets? The answer is simple. You invest outside the realm of the public markets. NuView clients and many savvy independent advisors implement a self-directed IRA as part of their overall portfolio to provide for additional diversification and the possibility of higher returns.

Self-directed IRA account holders are typically confident, independent decision-makers who leverage their expertise to make unique investments into asset classes such as real estate, private equity, private lending, precious metals, and cryptocurrency. In fact, there are very few assets that can’t be owned by a self-directed IRA. In addition to offering additional diversification, self-directed investors take comfort in understanding what it is they’re investing into. It was the famous mutual fund manager Peter Lynch who said, “Know what you own, and know why you own it”. While that isn’t the case for most investors, this advice rings true for self-directed investors. If you’re interested in broadening your investment horizon and feel that you would benefit from having more choices and more control over your hard-earned retirement dollars, consider how a self-directed IRA might play a significant role on your path to accumulating wealth and financial freedom.

Tyler Carter

Director, Business Development