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Diversified portfolios are essential if you want to reduce the risks and volatility associated with investments due to market fluctuations, changing currencies, political and geographic instability, etc. A diversified portfolio can be defined as a portfolio that contains different types of assets such as stocks, bonds, binary options, stocks, forex, cash, bullion, etc. It is an investment strategy to minimize the risks involved.
In general, there are 5 types of investments that are common in a diversified portfolio. Let’s take a quick look at each of them.
1. Stocks
Everyone has heard of stocks, but what exactly are they? A share is nothing more than a type of financial security denoting ownership of an organization and because of this fractional ownership the individual has a right to the company’s earnings and assets. Stocks come in two types; preferred and common.
A common stock gives you voting rights at stockholders’ meetings, while a preferred stock gives you no vote, but you receive higher dividends than common stockholders. A stock is the fundamental part of any diversified portfolio and as such should never be abandoned.
Read this post to learn more about high dividend stocks on suredividend.com.
2. Bonds
A bond is a type of loan that an investor makes to an organization, government entity, or corporation. It is also known as a debt investment. The funds are borrowed at a fixed or variable interest rate and used by borrowers to fund projects.
They fall under the category of fixed income securities. Bonds can be traded on exchanges and OTCs (over-the-counter). They are an integral part of a diversified portfolio and should always be included.
3. Binary Options
This type of investment can pay off for any investor provided they do it the right way. It is usually added to a diversified portfolio to spread risk. A binary option is basically a yes-or-no strategy. Binary options include stocks, currencies, commodities, etc.
It works on the principle that if you can predict the price of a specific option at a specific time on a specific date, you receive a fixed fee. On the contrary, if you don’t do this, you will get nothing.
4. Currencies
Forex trading or forex trading is the most well-known trading method and forms an essential part of a diversified portfolio. Trading currencies is important for conducting business and trading.
The Forex market is currently the largest and most liquid global market, also overshadowing the stock market. On any given day, more than $2700 billion worth of forex is traded.
5. Bullion
No one can deny the importance of adding precious metals to your diversified portfolio. Bullion refers to gold or silver bars, coins or bars. Precious metals should be part of every portfolio as they consist of precious metals which, unlike paper currencies, have intrinsic value and are hedged against inflation. In addition, it protects the investor in times of crisis.
