Overlooked ways to add diversity to your portfolio

Investing
4 MIN READ | #blog

It’s an exciting time for American investors. Recent years have seen a boom in Americans investing in the stock market, with Goldman Sachs estimating U.S. households will spend $400 billion on equities in 2021, averaging an eyebrow-raising 44% allocation of their total assets to stocks.1 Between new technologies (like mobile trading apps) lowering the bar to entry and “meme stock” trends raising awareness, it’s no wonder so many people are waking up to the power and potential of investing.

But, there’s more to investing than the stock market. To help manage risk and maintain balance, any investor, new or experienced, should learn about an important strategy: portfolio diversity.

What is portfolio diversity?

Traditionally, a diverse portfolio means a mix of stocks and bonds.2

But investment strategies continually evolve. As mentioned, technology is opening investment access to more people than ever before. At the same time, there are long-standing financial tools that often get overlooked. Together, these can help you build a varied financial strategy and build confidence for the long term — and add diversity beyond stocks and bonds. Working with a financial professional can help you tap into the new tools, as well as benefit from some of the lesser-known strategies.

Insurance options for your life today

The goal of portfolio diversification is protection: helping to keep your investments protected from downturns and other unexpected events. But, what if the unexpected is a personal emergency that threatens your income? Many people in their 20s are surprised to learn that approximately one in four people will become unable to work for a substantial length of time due to illness or injury. In a crisis, disability insurance can help replace a portion of your income if you’re too sick or injured to work, helping you keep your savings and investment funds intact, instead of draining them while you’re out of work. If you’re in a committed relationship, a spousal benefit policy can help protect your partner, too.

Whole Life Insurance adds diversity

Another tool for adding diversity is whole life insurance, especially after you have children. First and foremost, a whole life policy can help give your loved ones financial protection. Plus, as you pay your whole life premiums, the cash value component accrues as an asset, and you can use this asset to help finance big goals like your child’s college education or starting your own business.3,4 The cash value is an asset that is uncorrelated with the ups and downs of the market. In addition to this cash value, whole life may even be able to help you offset unexpected expenses like long term health care or other costs you may face in retirement, through available features and riders.5

Annuities provide income in retirement

Annuities are another tool that help you reach long-term goals. They’re also known as “insurance for retirement.”6 People pay a financial institution a single lump sum or make several payments over time for annuities depending on the type of annuity. Once the annuitization phase is reached, annuities can provide guaranteed income7 in retirement, and they may come with certain tax benefits, too.

Whether you’re new to investing or continuing to grow your existing portfolio, it’s important to stay up to date on the variety of vehicles that can help protect your assets. More and more, people have greater opportunities to build wealth through innovative new technology, as well as established, but lesser-known strategies. A financial professional can help you create the best strategy to protect yourself and your loved ones, save money, and invest for your long-term goals.

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SOURCES:

1 Retail investor stock buying boom of 2021 is just getting started: Goldman Sachs, Yahoo! Finance, June 21, 2021.
2 Diversification does not guarantee profit or protect against market loss.
3 Some whole life polices do not have cash values in the first two years of the policy and don’t pay a dividend until the policy’s third year. Talk to your financial representative and refer to your individual whole life policy illustration for more information.
4 Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any outstanding loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under 59 ½, any taxable withdrawal may also be subject to a 10% federal tax penalty.
5 Riders may incur an additional premium. Rider benefits may not be available in all states.
6 Annuities: Insurance for Retirement, Investopedia, May 20, 2021
7 All guarantees including the death benefit payments are dependent upon the claims paying ability of the issuing insurance company.

DISCLAIMERS:

All investments contain risk and may lose value. Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.