What is it?

Diversification is not putting all your eggs in one basket when it comes to investment diversification. There are several ways for Asset Allocation & Stock Investment Diversification, but the key is that you are investing in different types of assets. That can mean investing in different asset classes as well as having a variety of types of stocks.

Asset Classes

One way people talk about diversification is in respect to asset classes. Many people believe you should spread your money out between stocks, bonds, real estate, commodities and cash. The following is a breakdown of these five major asset classes:

1. Stocks is having a small piece of ownership in a company. Microsoft is an example of a company you can buy stock in.

2. Bonds are debt. You own a certain amount of debt from a company or government and they pay you interest for that debt. Many companies have bonds that you can buy, and our government has plenty to go around as well.

3.Real Estate Investing is owning land, and the buildings on that land, as an investment. It is most often associated with buying and managing rental properties. You own the land and make money by renting it out either to an individual, in the case of housing. Or to a business, in the case of commercial real estate.

4. Commodities These are things like gold, silver and oil which, generally, come out of the earth and are in demand.

5. Collectibles Famous artwork, coins, & valuable antiques are examples of collectibles you can invest in.
Each has its own set of pros and cons, so you’ll want to do your research to find out what will work for you.

Investing this way means that, even when bad things happen, your entire portfolio doesn’t have to go down. For instance, while stocks and real estate declined during the last recession. Precious metals like gold and silver went up. Having something from each asset class can soften the blow when things go downhill. Having some cash and money in safe investments like savings accounts and money market accounts is a good idea as well.

Stock Sectors

Another way to achieve diversification is by not having too many similar stocks in your portfolio. In other words, all the stocks you own shouldn’t be banks or financial institutions. If you had a portfolio like that a few years ago, you would have been in rough shape.
Each category of business is also called a sector. The idea is to focus on several different sectors and find the best companies in each. Let’s say you were going to invest in five stocks. You might want a bank, a utility, a healthcare company, a tech company, and a consumer goods company.

The different stock sectors include:

1. Basic Materials Companies that do things like mining, drilling for oil, or deal with metals such as Aluminum make up this sector. Examples of these companies would be Alcoa (NYSE: AA) and Exxon Mobil (NYSE: XOM).

2. Conglomerates These are a variety of different businesses rolled into one company. General Electric (NYSE: GE) is a good example of this.

3. Consumer Goods What do Ford (NYSE: F), Whirlpool (NYSE: WHR), and Hasbro (NYSE: HAS) have in common? They produce goods consumed by the public such as cars, appliances and toys.

4. Financial Banks and insurance companies like JP Morgan (NYSE: JPM), Bank of America (NYSE: BAC), and Aflac (NYSE: AFL). They can be also found in the financial sector.

5. Healthcare Drug companies, biotechs, and medical parts suppliers are also considered healthcare companies. Johnson and Johnson (NYSE: JNJ) and Eli Lilly (NYSE: LLY) all fall under this umbrella.

6. Industrial Goods This includes aerospace, construction, tools, equipment manufacturing and other similar industries. Some of the major players are Boeing (NYSE: BA), Caterpillar (NYSE: CAT), and Honeywell (NYSE: HON).

7. Services Advertising, retail, railroads, and trucking are all part of the service industry. A few well known service providers are Union Pacific (NYSE: UNP), Best Buy (NYSE: BBY), and FedEx (NYSE: FDX).

8. Technology Any company that focuses on technology belongs here. Apple (NASDAQ: AAPL), and Microsoft (NASDAQ: MSFT) are all technology companies.

9. Utilities Look no further than your monthly utility bills; electric, gas, and water. Two examples of utilities are Duke Energy (NYSE: DUK) and Consolidated Edison (NYSE: ED).
While having your money in five different companies is better than on. Having them all in the same sector won’t help you much. When things are going for one, there is a good chance they are all suffering. The financials of the past few years and the tech companies from the dot com bubble can attest to this.

9. Utilities Look no further than your monthly utility bills; electric, gas, and water. Two examples of utilities are Duke Energy (NYSE: DUK) and Consolidated Edison (NYSE: ED).
While having your money in five different companies is better than on. Having them all in the same sector won’t help you much. When things are going for one, there is a good chance they are all suffering. The financials of the past few years and the tech companies from the dot com bubble can attest to this.

Conclusion

Though investing can be challenging, diversification is pretty simple. If you keep your stocks from overlapping, you can avoid having too many days when everything you own is down. Invest in different types of companies as well as different types of assets. And in the long run, you will be grateful. Your returns won’t be such a roller coaster ride, and it will help you sleep better at night.

Some of the characteristics include;

Unless you win the lottery, have a rich uncle, or are lucky, there is no quick path to becoming a millionaire. A lot of people look for get-rich-quick schemes, but the truth is that they do not exist.
Becoming a millionaire is a goal that many strive for, but few get. This is often because it’s hard to put in the work required. Or because people aren’t confident they can actually achieve wealth.
But, the average person indeed is able to become a millionaire. But, it will take more work than winning a scratch ticket! There are certain characteristics that every self-made millionaire has:

1. Patience. It is impossible to become a millionaire overnight. Getting rich takes time. For example, you must be patient to finish years of schooling. Or to wait for the interest to compound on your investments.
2. Perseverance. To persevere means that you work towards a goal until accomplished. If you are going to become a millionaire, you must commit for the long haul. Consider it a marathon; you can’t give up two years into the process if you’re on a five year track.
3. Hard Work. Becoming a millionaire will need long nights and tough decisions. You may have to work on weekends or find a second job. Or if you’re in school, you’ll need to do whatever it takes to be at the top of your class.
4. Sacrifice. You’ll need to give up some of what you want now to have more of what you want later. These sacrifices may include a new car, a summer vacation, or dinners out. They may also include giving up some time with friends or family.
5. Courage. It takes guts to step out of your comfort zone, even when stepping out is the only way to achieve your goals. For instance, applying to the top schools in your field or for a promotion takes courage. After all, you could and will be at-least rejected once. What’s more is you need to come back from rejection and try again if you want to change your life. The difference between successful and unsuccessful is that the successful ones kept trying.

Municipal Bond meaning

Municipal bonds are debt instruments issued by city and local governments. They are also used to raise money for capital investment in local projects. Such as schools, streets and highways, bridges, hospitals, public housing, and utilities.

Municipal bonds bear interest paid as either a fixed or variable rate, depending on the terms of the bond. The issuer of the bond receives a cash payment from the investor in return for agreeing to pay the scheduled rate of interest to the bond holder. Interest is then paid over an agreed upon period of time that varies from a few months or sometimes longer. Once the bond matures (i.e. the term of the bond concludes), the investor is then reimbursed the face value of the bond.

Types of Municipal Bonds

Municipal bonds are generally issued as one of three types of debt obligation:

• General Obligation (GO) Bonds. Repay based on the “full faith and credit of the issuer” and are also considered the most secure type of bond. Because they carry the lowest interest rate.

• Revenue Bonds. Repay from a specified future stream of income. Such as a utility or payments from customers or tenants.

• Assessment Bonds. bind repayment from property tax assessment within the municipality.

Returns vary between municipalities. This makes research an essential part of municipal bond investing. But, municipal bond ETFs and mutual funds will do a part of this research for you. And can be a lifesaver for investors with busy schedules.

Pros & Cons to Municipal Bond Investing

An examination of the pros and cons relative to your financial situation and goals. This helps you determine whether investing in municipal bonds is profitable or not.

Advantages

1. Free from Federal Taxes. No one likes handing over a chunk of cash to the tax man. If you are in a high tax bracket or are seeking to create a tax exempt income stream for retirement. Then municipal bonds might be the thing to supplement your traditional pension investments. This tax refuge offers liquidity and tax efficiency all in one. A godsend to those in the highest tax brackets.
2. Free from State and Local Taxes. Municipal bonds are not only exempt from federal taxes. But if you play your cards right, you might dodge state and local taxes as well. Investments in local municipal development projects are also exempted from local taxes. Besides federal taxes.
3. Tax Advantaged Compound Growth and/or Income. Sheltering your investment from taxes allows growth more than in a taxable account. Municipal bonds purchased through a mutual fund or ETF allow you to reinvest bond income. Which then results in compound growth.
4. Lower Volatility Than Stocks (Fixed Income Assets). If the volatility of the stock market leaves your stomach churning. You may want to switch to an asset class with somewhat lower volatility. Municipal bonds have been one of the safest places to park your savings. Providing tax exempt returns and a generally much better return on invested capital. Than either FDIC insured accounts or Treasuries.
5. High Level of Liquidity. Municipal bonds are liquid and are also traded on a secondary market. This means that the capital can be also accessed incase of emergency. And without incurring a tax penalty. This is especially true for investors who invest via ETFs or mutual funds.

Disadvantages

1. Bond Yields May Not Beat Inflation. If you’re not investing in municipal bonds for current income. You’ll want to consider how your bond investment will hold up to inflation. Municipal bonds are often a conservative investment and they also offer tax advantages. their yields tend to be low. Thus, they are less likely to beat inflation than many other investments, such as stocks. This means the money you have parked in a bond fund could be worth less in buying power a few years from now than it is today.
2. Opportunity Cost. If you decide to invest in municipal bonds, take a look at the equation above to calculate your taxable equal yield. Running this ensures that municipal bonds make sense than a taxable bond investment. If you are in a low tax bracket, you won’t be able to capitalize on the tax advantages of a municipal bond. As much as someone in a high tax bracket. Moreover, you may give up the opportunity to realize the higher return on a comparable taxable bond if you invest in a municipal bond instead.
3. Interest Rate Risk. When interest rates go up, current bonds lose value. This is because bonds that carry a lower interest rate must sell at a discount to equal current bond yields. This is less of a concern if you plan to hold the bonds to maturity. but it can still be a difficult pill to swallow if you have to cash out bonds or bond funds when they are trading at less than face value.
4. Risk of Default and Loss of Capital. Any investment carries risk. Municipal bonds are no different. Although, it’s been rare, there’s always the chance the municipality could go belly up. In which case your interest payments and principal would loose.

How to Invest in Municipal Bonds

Generally speaking, there are two ways to invest in municipal bonds. Or through a municipal bond fund. Investors can buy bonds from a municipality through their bank or broker. This method offers investors the comfort of knowing what bonds they own within their portfolio. Such as general obligation, revenue, or assessment bonds. As well as the exact term and yield offered by the investment.

The second way to invest in municipal bonds is to buy shares in a municipal bond fund. This method offers instant diversification across many municipal bonds. This can reduce risk for investors. Another significant advantage is the increased liquidity available via bond funds. Fund shares can sell at any time, so investors will have no problem unloading their bonds for any reason.

The current economic environment has created some great opportunities for investments for right now. You can also use this economic dropdown for your benefit to improve your current financial situation. By making the right investments now, you can ensure yourself of a prosperous future. We often shy away from investing when the media or the “experts” tell us to be cautious. Warren Buffet always says you should be greedy when everyone else is conservative. And conservative when everyone else is being greedy.

Here are 4 great investments that you can make right now:

1. Invest in yourself.

Economic recessions are often the time that people realize the need to pursue higher education. Finishing up your degree can help make you a more marketable candidate in the job market. You can go back to college to finish up that bachelor’s degree or start working on that master’s degree. A college degree is worth it. The job market will remain tight for the foreseeable future. And an undergraduate or graduate degree can give you a leg up. The average college graduate makes about $450,000 in their lifetime more than a high school grad. That’s a lot of extra change! Going back to school can open doors for you to land that new job or seal that promotion.

2. Invest in a business.

Entrepreneurship is the backbone of American capitalism. There is no better impetus for starting a business then losing your old job. Do you have years of experience that make you an expert in a particular industry? Have you always wanted to run your own company? Start today! You could start a business in about any industry from selling computers to baking cakes and pies. While some businesses need significant amounts of money to get started. Many businesses can start with a business plan and a little research. Who knows, you may start the next Fortune 500 company right from your home!

3. Invest in real estate.

If you listen to the news, all you hear all about is the downtrodden housing market. While this is a negative for homeowners, it is a plus for home buyers. This is one of the best markets for buying a home in a long time. With lots of homes on the market, you can get a sweetheart deal if you have the money and the credit. Take advantage of low interest rates by buying a home. If you have a home loan with a high interest rate, it’s also a good time to refinance. Refinancing should not be always used to drain the equity out of your home but to lower your interest rate. If your interest rate is above 6%, you could get a lower rate with the right credit rating.

4. Invest in the stock market.

The best time to invest is during giant market selloffs. This is the time when the market gets cheap and presents great buying opportunities. During these troughs, you can buy some great companies at sale prices. The biggest mistake that most investors make is hesitating. And also not buying up shares when they are cheap. Wouldn’t you have loved to have bought shares of General Electric when they were $5? Or shares of Bank of America at $3? Strike while the iron is hot and load up on great companies when they are on sale.

Advantages

1. Diversification. Oil and gas investments have provided a useful diversifier against the economy. When gas prices rise, economies tend to slow. This could cause the rest of your stocks and funds to stumble. But when oil and gas prices rise, oil and gas stocks tend to rise with them. Exposure to oil and gas stocks can help cover your profile against economic slowdowns. Which are caused by oil shocks.
2. Profit Potential. Investments in the smaller companies and limited partnerships can pay off big. A single well can generate many times its costs if drillers strike oil. And the well can pay dividends for many years.
3. Tax Advantages. There are some tax advantages to oil and gas investing. For instance, the IRS allows companies to deduct for depletion. An allowance that for depreciation in rental real estate. Which is a way of accounting for the gradual exhaustion of mineral supplies in a given plot of hand. If you buy shares in a traded stock, this benefit will be invisible to you. Since corporations don’t pass profits and losses to shareholder tax returns. If you buy a limited partnership membership, it could be an important consideration.

Disadvantages

1. Volatility. Oil and gas investments can be subject to wild price swings. Especially when investing in smaller companies. If you get involved in exploratory drilling projects, you can lose a great amount of money. Diversification is the key to oil and gas investing. Losses of 50% or more are not unusual, and you can lose everything on any project.
2. Liquidity. While you can sell shares in larger companies, you may find it hard to sell shares in smaller companies. In some cases, you may have to redeem your interest with the company or limited partner. This is the case with held, traded companies and limited partnerships. Don’t become involved in these unless you are willing to tie up your money for a while.
3. Commissions. When you buy into a limited partnership or held corporation, you will pay a commission to a broker. These commissions tend to be much larger than standard stockbroker commissions. And can exceed 20% for very liquid companies. Any money that goes to a broker is money that doesn’t get put to work for you.
4. Complexity. Interests in held companies, oil wells, and other oil and gas projects aren’t for everyone. There are special tax rules that govern oil, gas, and mineral investments. And there are rules specific to limited partnerships that may affect you. Especially as you file taxes or account for shares when you sell them. We don’t recommend limited partnerships or MLPs. Except to very experienced investors who can take risks and commit for a long period of time. In a pinch, you may have better luck selling shares in an MLP than in a traded limited partnership.

Types include;

Generally peaking, there are four kinds of oil and gas investments:
1. Exploration These companies or projects buy or lease land and invest money in drilling. If they strike oil, the investment can pay off 10 times over. sometimes much more if the company uses borrowed money (leverage) to finance operations. If not, they may lose everything they invested in that particular project. Exploration companies are best suited for those with high tolerance for investment risk. These plays are speculative.

2. Developing These projects drill near proven reserves, hoping to unlock further value. These are less risky, but there are never any guarantees that their efforts will bear fruit.

3. Income These projects involve the acquisition of plots of land, either through lease or sale. Over proven oil and gas reserves, and seek to create a steady stream of income over and above expenses. This is the safest way to get involved in the drilling and extraction operations. And is more of an income play than a speculative play. The risk is that the oil or natural gas will run out faster than expected.
This investment is for those seeking a passive income stream. But can take on more risk than investing in other traditional income generators. Like investment grade bonds and annuities.

4. Services and Support These companies provide unlimited supporting services to the oil and gas industry. Examples include transportation, shipping and logistics companies, pipeline companies, construction and rigging companies. Drilling and refining hardware and equipment manufacturers, refiners, and many others.

Investing in these companies is like investing in any company involved in logistics. Some of these investments don’t rely on increasing fuel prices to be profitable. For example, pipelines make money by charging a fee per barrel transported. They’ll make roughly the same amount regardless of whether fuel prices rise or fall. As long as demand remains consistent.