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Tuesday, March 5, 2024

Lazy Investors: 5 Strategies to Profitability in 2023

Many people go into investments in order to receive passive income. The best way to do this is to build a lazy portfolio. Such portfolios are special in that they are easy to collect and rebalance, since they usually contain several exchange-traded funds, and at the same time they are highly diversified. Thanks to these features, they flexibly adapt to any market situation. Therefore, for those investors who prefer to invest money for a long time on the principle of “buy and hold”, this is the best option

“Take the first step today and start investing wisely; it’s the best way to achieve profitability by 2023!”

By City Telegraph Staff

What can be diversification?

Diversification is an investor’s risk management strategy. Simply put, it is not to put all your eggs in one basket, but to distribute financial instruments among different assets. In this case, even if one of the assets burns out, others will be able to compensate for the losses through growth.

The types of diversification are as follows:

By asset class. There are many different financial instruments – stocks, bonds, gold, cash. All of them are different in nature. Each of them has its own characteristics and behaviors. Thus, the overall risk of the investment portfolio can be reduced by using them. Among the shares, as a rule, there are large, medium and small, which differ depending on the capitalization of the company.

Within the same asset class. For example, if money is invested in shares, then securities of a large number of companies are bought at once. For example, the risks of a portfolio consisting of shares of 10 issuers are much lower. than that of a portfolio that has only one stock, even if it is in large numbers. On average, the difference is estimated to be twice. Therefore, when investing in stocks, it is recommended to hold at least 20 securities. But what to do with lazy portfolios? After all, a large number of assets in them is not very suitable. For example, you can use exchange-traded funds. There are hundreds of companies at once, but in fact you are investing in one investment instrument.

By sectors. Each sector of the economy has its own characteristics. There are cyclic or protective sectors. Some have more growth stocks, while others have more dividend stocks. All this provides additional opportunities for expanding the set of investment instruments in the portfolio.

By countries. You can invest in companies in the USA, China, Germany, Russia. Each of them has its own characteristics, as well as investment risks. There are more developed countries that have lower investment risks. There are developing countries that are somewhat reminiscent of shares of young companies – in general, they are growing, but at the same time they can go bankrupt at any time or there will be a crisis in them that will lead to the loss of savings. It is recommended to bet on emerging markets during economically stable times, but when a crisis is expected, transfer more funds to the development of the economy. 

By currencies. Economies have different growth rates, trade balances and added value of goods. As a result, exchange rates may vary. So, there may be a devaluation of money in relation to each other, as well as their purchasing power is reduced.

Today we will talk first of all about diversification by asset class, by sector and by country. First, let’s look at lazy portfolios in dollars, collected on the basis of foreign ETFs. Then we will give a list of analogues that can be used even by ordinary investors on the Moscow Exchange

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