We're a stock-picking company at The Motley Fool, but there are a ton of other ways to invest your money, each with their own pros and cons.
In this segment from Industry Focus: Healthcare, analyst Kristine Harjes and contributor Todd Campbell talk about a few of the different ways that investors can spread their money around to mitigate risk, why it might be a good idea to keep some of your investing money free and liquid, why you might want to invest a small part of your portfolio in metals, and more.
A full transcript follows the video.
This video was recorded on Oct. 25, 2017.
Kristine Harjes: First off, we are a stock-picking company, we talk about buying stocks all the time. But that's not the only place you can invest. You want to give our listeners an idea of some of the other places that you can invest money?
Todd Campbell: Do you mean as far as, diversifying across bonds and commodities?
Harjes: And metals and real estate.
Campbell: Absolutely. I mean, healthcare is the only game in town. What are you talking about, Kristine?
Harjes: [laughs] It's biotech or bust.
Campbell: [laughs] I mean, come on, 100% plus margin. Come on. No, I mean, there are a lot of different places that you can put your money. And it doesn't have to all be in stocks. And for many people, it shouldn't be. Obviously, as we get older and our income streams change, perhaps we're retiring and collecting Social Security or something else, and our income isn't quite as high as it was when we were working full-time, we want to have things like bonds. And if we have some tax issues, maybe we want to be looking in bonds and saying, maybe we want to have some municipal bonds so that we have some tax advantages. Or maybe we want to have some insulation. Some of the leading portfolio managers out there recommend that you have 5% in gold, for example, as an allocation to insulate yourself a little bit of some of the risks of instability in the world. So, yes, there are a lot of different places where people can invest their money outside of individual stocks. They can buy oil futures, they can buy all sorts of crazy things. For most people, once you get beyond equities and bonds, you're talking about taking out a lot more risk in the portfolio, and I think that's something that every investor has to balance. You're not just talking about each individual piece of your portfolio. You're talking about how it all in the end comes together. What's the aggregate effect this is going to have on my pool of cash. So, thinking to yourself, I can put 5% in gold. Well, you only have 5% in gold, but what's that going to mean for the broader portfolio that you have? Is that enough, or is that too much?
Harjes: And something to also consider is how much you should be investing at all, as opposed to holding it in cash. If you're going to need that money relatively soon, within the next three to five years, it's probably not a good idea to tie it up in, particularly, the stock market or more volatile asset classes. So, definitely something to be considering, particularly as you get older. If you're going to need the income in retirement relatively soon, you might not want to invest it at all in any of these asset classes that we're talking about.
Campbell: Right. And as stock pickers, you make a great point. David and Tom Gardner have talked about this in the past, about having a little bit of dry powder held back to be able to take advantage of opportunities that they see along the way. If you're investing 100% of all your money that you can invest, you're not going to be able to take advantage of some of those blips on the radar.
Harjes: That's a great point, too.
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