How to Rethink Your Investment Diversification Strategy in 2024

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Financial stability is a top priority today amid the fear of recession, growing inflation, and impending housing crisis. Anyone with spare money wants to invest it for long-term stability, growth, and profits. According to a 2022 Finder report, about 1 in 3 Canadians had stock market investments in 2021. The numbers have grown ever since, but so has investment in other avenues.

Another survey shows that 7 in 10 Canadians think they are financially literate. Investment diversification is one area these savvy people want to focus on. Although finding an asset class you trust sounds tempting, it isn’t the way to build your investment portfolio. Diversification is a wise move on any day as it divides your risk and maximizes your profit potential.

However, building a diversified portfolio may be nerve-racking, even for a seasoned investor, let alone a novice who has just entered the market. You can follow expert advice and read online resources to master the game, but a set-and-forget approach can stall your growth. The New Year is a good time to rethink your approach.

In this article, we will share a few tips to rethink the way you diversify your investment portfolio in 2024.

Review Your Financial Goals

Your investment diversification strategy should be in tandem with your financial goals. Reviewing these goals is, therefore, the best place to start when it comes to rethinking your approach. Consider factors such as changes in your life circumstances, investment horizon, and risk tolerance to adjust your goals for the short- and long-term.

A new Ipsos poll showed that 68% of Canadians have set financial goals, such as retirement planning (59%), saving for vacations (46%), repaying debt (39%), and setting aside money for a large purchase (36%). Whatever your goals, you should invest accordingly. 

For example, assets with a long-term growth potential are ideal for those saving for retirement. Conversely, you should add quick-yielding assets to your portfolio to align with your vacation-planning goals. Consider the best Canadian REITs if you want to invest in real estate without the hassle of property management. This is a great option for busy people looking for a stable investment. 

According to ValueTrend Wealth Management, Real Estate Investment Trusts (REITs) offer exposure to stable and high-performance real estate assets without locking you down with the heavy lifting of managing them.

Evaluate Current Portfolio Allocation

After revisiting your financial goals, you must conduct a thorough analysis of your existing portfolio. New investors can skip this step as they will start building from scratch in 2024. Those already having an investment portfolio must examine its allocation across different asset classes, sectors, and geographic locations. Here are a few measures you can implement:

Declutter and Refresh

Assess the performance of individual holdings in your portfolio to understand what’s working and what’s not. This is a good way to declutter and refresh your strategy with a new perspective in the New Year.

Balance Your Portfolio

Check if your portfolio is over concentrated or underweight in specific areas. Consider giving up on some assets and picking more of others to create a balanced and well-optimized portfolio. 

Seek Expert Advice

Whether you want to invest in a business for sale in Kelowna or Alberta, perhaps you can seek advice from an investment expert to rework your portfolio for the best outcomes in the coming year. Even seasoned investors should not hesitate to ask for guidance.

Consider Global Economic Trends

According to Deloitte Canada, the Canadian economy will witness a slow first half in 2024 and return to growth in the second half. Interest rate cuts are expected to happen as early as spring. Your investment diversification plan should align with the changes as they happen. Besides being aware of the local market, you should pay attention to the current global economic landscape. 

Analyze the following elements to get a clear view of the international markets and adjust your portfolio accordingly:

  • Monetary policy shifts
  • Geopolitical events
  • Economic indicators
  • Emerging trends and potential risks

Explore New Technologies and Sectors

Did you know that technology was the second-leading investment sector in 2022? The trend continues, with technological advancements and emerging sectors making the most for investors. Artificial intelligence, renewable energy, and biotechnology are the best options for long-term growth prospects. Here are the steps to help you explore these sectors when diversifying your investments:

Assess Growth Potential

The first step is to evaluate the growth potential of these technologies and sectors. For example, you can dig deep and look for ones with increasing market demand, a strong innovation pipeline, and the ability to have transformative impacts on various sectors. The effort is worthwhile as it enables you to pick opportunities aligning with your investment objectives.

Evaluate Risk and Volatility

Besides studying the growth potential, you must understand the risk and volatility of these new technologies and sectors. They may surely offer high growth potential, but you cannot overlook the possibility of uncertainty. Assess your risk tolerance and take a balanced approach with both traditional and innovative sectors in your portfolio.

Consider Industry Trends

When it comes to breaking into innovative sectors, an analysis of industry trends is essential. You should also anticipate future developments by visualizing how technological advancements and shifts in consumer behavior might impact different sectors. Staying ahead of these trends can give you a strategic advantage with the allocation of resources to sectors poised for growth.

Diversify Within the Sector

Another smart move for investors exploring the tech sector is to diversify within it. For example, you can spread your funding in areas like artificial intelligence, cybersecurity, and cloud computing instead of putting it all in one place. Another tip to diversify within the tech sector is to choose a mix of established companies and startups to get the best of both worlds. 

Watch Regulatory Developments

Regulatory changes can significantly influence the success of companies in certain sectors. For example, the AI segment faces several potential regulations in 2024. Once these are implemented, investors may find themselves in a different space, with potential drops in stock prices. Another segment that faces volatility due to regulations is cryptocurrencies. Staying informed can help you make proactive investment decisions.

Stay Adaptive and Flexible

Since the pace of technological change can be rapid, investors have to be adaptive and flexible. The best way to do it is by being prepared to adjust your portfolio as market dynamics evolve and new information emerges. Assess your tech investments regularly to ensure they are safe and thriving. 

Incorporate ESG Criteria

Another viable tip to refresh your investment diversification strategy in 2024 is to integrate environmental, social, and governance (ESG) considerations into it. According to 2023 statistics, 50% of professional investors worldwide plan to invest more in socially responsible alternatives over the next year. Besides following the market trend, this approach keeps you ahead of responsible investing. Here are the steps you can follow to adopt ESG criteria as a part of your investment goals:

Understand ESG Principles

A comprehensive understanding of the ESG principles gives you a good start. Evaluate companies based on their ethical standards and sustainability practices. Also, assess their relationships with communities and employees to find ones worth investing in. 

Assess Your Values and Objectives

Besides understanding the principles of corporate ESG, you should assess your own values and investment objectives. Think about what really matters to you, whether it is promoting environmental sustainability, advocating for strong corporate governance, or supporting social justice. It will guide your ESG-focused investment choices. 

Identify Relevant Opportunities

Look for companies aligning with ESG principles and actively working to improve their sustainability practices. While 88% of public companies have ESG initiatives in place, not all are the same. You can check ESG ratings for stocks and funds to identify suitable opportunities. Numerous financial platforms provide these ratings to help investors. 

Diversify Across ESG Themes

You can go the extra mile with ESG investments by diversifying them across various themes. For example, invest in clean energy, ethical supply chain management, diversity and inclusion, and companies with transparent governance structures. The idea is to ensure a well-rounded approach to sustainability. 

Assess Long-Term Financial Impact

While adding ESG investments to your portfolio, assess their long-term financial impact. The good thing is that companies with strong ESG practices are resilient due to a growing trend. At this point, look for ones with a strong reputation for sustainability because they will likely be a growth-focused option. 

Review ESG Performance Metrics

Choosing the right investments requires more than following the market trends and picking popular ones. You must dig deep into the ESG performance metrics of potential investments. These are the initiatives quantifying a company’s commitment toward ESG goals. Assess how well they adhere to the criteria and whether they are implementing measures to improve their practices.  

Stay Informed on ESG Developments

Being aware of global ESG developments, industry trends, and regulatory changes gives you an upper hand when it comes to integrating these investments into your portfolio. With these developments, standards and expectations may evolve. Being informed enables you to align your strategy with the latest sustainability practices.

Periodically Reassess and Adjust

Investors should understand the significance of adaptability because you cannot take a set-and-forget approach to building diversified portfolios. A combination that works today may become redundant tomorrow because of changes in market factors and global economic trends. For example, the emergence of cryptocurrencies was one of the game-changing factors in the investment landscape.

In 2024, commit to periodically reassessing and adjusting your diversification strategy to keep it ahead of the market trends. Regularly review your portfolio and be ready to upgrade your investments as required. Also, give attention to the regulatory landscape and give up on investments that may be on the wrong side of compliance.

In conclusion, diversification is an ongoing process that requires a good understanding of the market to choose wisely. You should also be vigilant and adaptable to quickly align with the needs of the hour. Following these actionable tips will help you achieve success in the dynamic investment landscape of 2024 and beyond. 

I'm Allison Dunn,

Your Business Executive Coach

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