Diversification is an astute money management strategy whereby an individual has both a diversification of income and a diversification of investments. Diversification as it relates to money management is an individual's intentional creation of multiple streams of income combined with an investment portfolio that is diverse and lucrative. A wide variety of active and passive income streams are developed to protect the individual from significant changes and shifts in the economy and market. The investment mix may offer a huge upside with a limited downside.
Income diversification involves a collection of income producing opportunities with minimal risks while providing consistency in income. High yield stocks with large dividend payments can diversify a person's income. Additional income sources beyond W-2 wages can provide diversification of income, too. There are many freelancing websites that allow non-employees to generate income by providing a skill set in which the individual can excel. Others may provide delivery services or ride sharing to commuters, local residents, party goers, or travelers.
Investment diversification is not only wise, but it insulates the investor from the potential exposure or risk from one single investment or investment type. It is also important to know and understand that a diverse portfolio will typically outperform a limited investment portfolio over time. This outperformance will also maximize the returns realized.
Contact an Investment Advisor for more information regarding investment diversification.
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Nicole Michelle
Finance and Money Wiz
April 12, 2021
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