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3 Ways to Diversify Your Portfolio Outside of Stocks

By Maurie Backman – Jun 23, 2021 at 6:49AM

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It pays to own more than just stocks. Here are some other options to look at.

You'll often hear that a diverse investment portfolio is your ticket to growing wealth. And often, that means owning an array of stocks so you're invested in companies from different market sectors.

But while owning a bunch of different stocks is a good first step toward a diversified portfolio, it can also be beneficial to branch out from there. Here are some investments to consider outside of stocks that could help you attain your financial goals.

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Image source: Getty Images.

1. Bonds

Because bonds are generally a less risky investment than stocks, their returns tend to be lower. And it's generally unwise to keep a large chunk of your assets in bonds when you're younger.

But that doesn't mean bonds should have no place in your portfolio at all. Not only can you potentially sell bonds for more than you paid for them, but bonds pay interest that you can collect or reinvest to further grow your wealth. And if you buy municipal bonds, which are those issued by cities, states, and other localities, you won't get stuck with a federal tax liability on the interest payments you collect.

2. Real estate

The great thing about the real estate market is that it often moves independently of the stock market. As such, you may have a period when stock values are down, but home values manage to hold strong.

You can add real estate to your portfolio by investing in physical properties or you can buy REITs -- real estate investment trusts -- instead. REITs trade similarly to stocks and can pay generous dividends which, like bond interest payments, you can reinvest for even more growth.

Meanwhile, if you buy physical real estate, you have several options. You can buy properties in disarray, flip them, and turn a quick profit. Or, you can purchase income properties that you hang onto for years, all the while making money from rent payments.

3. Cryptocurrency

Though cryptocurrency is still a fairly risky and speculative investment, there may be a place for it in your portfolio. If you're not particularly risk-averse, it could pay to add some digital coins to your investment mix, provided you do your research first and understand what you're getting into.

That said, you may be better off putting just a small portion of your assets into cryptocurrency. Not only is the digital currency market very volatile, but it's still difficult to determine whether cryptocurrency is a viable long-term investment, or whether it's the sort of thing you can really only put money into on a short-term basis.

The future value of cryptocurrency will hinge largely on how much demand there is for it. Right now, demand is high because cryptocurrency is a limited commodity. But if it doesn't become a widely accepted form of payment, then it may not be worth much, or anything at all, in five, 10, or 20 years from now.

Diversity in your investment portfolio is important, but stocks aren't the only way to achieve it. It pays to consider these options if you're really looking to mix things up.

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