(Forbes) Investing has never been easier. Thanks to new software and technology, you are only a click away from investing in stocks, cryptocurrencies or even tangibles. Because of its widespread availability, it becomes a pressing issue to think critically when seeing what appears as great opportunities, and very importantly, not to act on a whim. So to develop a portfolio of successful investments, as the founder of a tangible asset company, I have observed that it's best to look at a variety of tangible and intangible investment options.
In this article, I will outline some steps you can take to minimize the risks in your portfolio for a safe and long-term storage of wealth and with the best potential of lucrative returns.
Best Practices For Minimizing Risk In Your Portfolio
1. Diversify your investments. When you invest in shares, you express, represented by a monetary value, the trust that you have in that company. However, even if you have great reason to believe that the company will perform well, you cannot account for the external factors, such as the macroeconomic, political and societal impacts which may influence a downturn in the share valuation. Therefore, the diversification of your portfolio is strongly encouraged to avoid putting all your eggs in one basket and to minimize the correlation between your investments, meaning that if one investment falls in value, it shouldn´t influence your portfolio as a whole.
2. Do your research before investing. When you are looking to diversify your investments, it may be of interest to you to invest in tangible assets. But keep in mind that when looking at different options, whether it be, for example, real estate, antiquities, wine or gemstones, you need to identify the budget for investing and how much time you are willing to spend on acquiring and maintaining the quality of the particular asset. For instance, when looking at gemstones as a tangible asset, upon researching, you would find that they are easily stored, typically don't require additional expertise and have a high-value concentration. Keep in mind that some tangible assets, such as real estate and antiquities, require some maintenance. One would also need to pay special attention to the climatic conditions for tangible assets like paintings or special attention to storage conditions, such as for wine.
3. Have confidence in the long-term value of your investment. Gemstones, gold and platinum are all examples of mobile investments that are easy to store and with no level of maintenance needed. But for investments to make financial sense, one needs to have confidence in their long-term value growth. As with investments in art, wine or classic cars, one aims to resell once the value has increased. These types of items are suitable for people who are interested in long-term capital growth. The benefit of investing in a long-term asset class is the relationship between volatility and time. Investments that are held for a longer period will have lower volatility in comparison to short-term investments, such as stocks.
To bring it back to the gemstone example, the reason why rubies have had such immense growth in value, with an average of 8% increase p.a. the past 25 years, according to my company's research, has to do with them being rare, beautiful and culturally important across the globe historically. In China, rubies have had a surge in demand; much of it being because of the cultural importance of the color red, and with an increase of disposable income for medium- to high-income earners, it has resulted in more emphasis on learning about alternative investments, such as jewelry and gemstones.
An additional point to the impressive value growth here has to do with the objective of obtaining ethically sourced gemstones. This increases restrictions with gemstone mining, and then a reduction in supply leads to an increase of rubies' desirability and, hence, its valuation. In comparison to diamonds, gold and platinum when looking at the Gemval Aggregate Index, naturally colored gemstones show the strongest growth in value over the past 15 years and have the highest concentration of value.
Thinking Critically Before Investing
Before you begin to invest in tangible items, you need to identify what it is that you wish to achieve with your portfolio. If you wish to include a long-term, stable, yet well-performing investment, a tangible asset may be right for you. It is, however, recommended that one should have investments in various fields. This can help you build a large and diverse portfolio and minimize the correlation with macroeconomic developments, which is especially important in an ever-changing economic playing field.
