We hear a lot about how important portfolio diversification and asset allocation are to our investments. The financial planners tell us how diversification is the best way to invest. We should “Never put all our eggs in one basket,” they tell us.
Makes sense. If all our money was in one stock and the company went out of business, we would lose everything. Just ask the people who worked at Enron.
Search online and you will find millions of articles about how to diversify. Gold bugs will tell you to buy gold stocks and gold bullion. Conservative financial planners will tell you to buy bonds. Stock brokers will tell you to put your money into stocks but in different industries. Others will tell you to buy commodities and futures.
That’s all great when the market and the economy are doing well. But what happens when the economy is down or even when it is going sideways – very little growth but no decline either?
When the economy is up:
- Stocks go up.
- Companies buy supplies and so commodity prices go up.
- Money flows to the stock market so bond and CD issuers have to pay higher yields.
- And gold does whatever it wants.
When the economy is down:
- Stocks go down
- No one is buying commodities so supply increases and prices go down
- Money flows out of stocks to bonds so yields come down. Plus the government will lower interest rates to spur the economy and that will cause yields to go down further.
- And gold is still doing whatever is wants.
When the economy is sideways:
- Stocks don’t move much at all.
- Commodities don’t move much at all
- Bond and CD yields are decent but nothing to write home about.
- Gold actually goes down.
So how do you diversify your portfolio in bad or so-so times?
You could buy real estate. Real estate normally goes up 4% a year. And you can rent out the real estate if you don’t mind tenants. But real estate is not very liquid and you’d probably have to borrow money to buy any. Real estate to me, is a business, not an investment. The people I know who are doing well in real estate treat is as their business. Those that want it to be a passive investment either get sick of the headaches or never learn to turn a profit.
My suggestion would be to Sell Options as a way to diversify your portfolio.
An option is a decaying asset. When you sell options, the value of the option deteriorates everyday. Thus you make as time goes by.
Options make money in up, down and sideways markets. So no matter what the market is doing, as an option seller – you won’t care.
If you talk to a financial planner, they will probably tell you that options are very risky and that only professionals use them. That used to be true. It’s not anymore. Options are gaining in popularity with new records being set every year for the amounts of options being traded. It is also true that your financial planner has probably never traded options and will not make any commissions from you if you begin to trade options.
Normally if your investments generate a return of over 10% a year, your financial planner will say he did a great job for you. And you might be happy with 10% a year. But with Option Selling you can earn more, a lot more. In fact, many option sellers aim to earn 10% a month – not a year. Heck even if you only did half that and earned 60% a year, that would be pretty good don’t you think?
I can’t cover everything about option selling here, but I can tell you that it should be something you need to look into to diversify your portfolio. Even if you only use 10% of your total portfolio, it would increase your overall returns dramatically.
There are plenty of websites that will teach you about option selling. My favorite is OptionGenius.com – mainly because it’s my own website. Just imagine: 10% monthly returns working just 5-10 minutes a day.