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Wealth is more than money

Strategies to increase ROI through smart portfolio diversification moves

Mark Candler //August 30, 2021//

Wealth is more than money

Strategies to increase ROI through smart portfolio diversification moves

Mark Candler //August 30, 2021//


Diversification is an essential technique used to reduce the risk of investing by spreading investments over different financial industries, instruments, and in other categories.

The key is to diversify allocations so that each reacts differently to the same type of event. Diversification doesn’t guarantee against financial loss; however, it is an essential strategy to minimize risk while still reaching long-term financial goals. In short, diversifying means not putting all the eggs into one basket. 

Here are some tips investors can use to ensure their portfolio is diversified to increase their ROI. 

Use Both Short- and Long-Term Investments 

Short-term assets are generally highly liquid, and many don’t allow a high rate of return. Examples of short-term assets include high-yield savings accounts, certificates of deposit, (these are long term)Treasury bills, and money market accounts. Long-term investments may be riskier but have a potentially higher ROI. They can include stocks, corporate or government bonds, mutual funds, EFTs, tax-sheltered retirement plans, and annuities. Using a combination of both can help investors meet both their short- and long-term investment and financial goals.  

Invest in Different Risk Levels 

Using a layering technique between levels of risk helps balance financial goals for stability but also increased ROI. Choosing investments with varying risk levels can be done throughout an investment portfolio with stocks, bonds, and other asset classes.  

U.S. Treasury bills, notes, and bonds usually have the lowest risk of default. Corporate and municipal bonds can vary depending on corporate and city finances. Junk bonds have a high ROI but also a higher risk of default.  

International stocks tend to have an additional risk (currency risk) over U.S. stocks. Investing in different company types and sizes can help diversify a portfolio to increase RIO.  

Invest in Real Estate or Alternative Assets 

Real estate may not be the first thing that comes to mind when considering an investment portfolio. Still, it can be a successful way to increase your wealth. One of the most common ways to do this is to own individual rental properties. However, if an investor doesn’t have the time or desire to do this, a more passive approach is available through REITs, EFTs, or mutual funds. 

Some investors diversify their portfolios with alternative assets, such as coins, collectibles, and private equity. Keep in mind that alternative assets aren’t as liquid as stocks or bonds. As such, consider them a long-term investment option. 

Rebalance Routinely 

Rebalancing is a maintenance process to keep a portfolio diversified. Even though an investor’s allocation is determined when the portfolio is created, the individual performance of each investment can cause the allocation to become imbalanced. 

With rebalancing, investors sell investments that have grown and purchase more that have decreased in value. Taking these actions gets the portfolio back to the way the investor intended it to be. Rebalancing annually on a date that is easy to remember, such as a birthday or anniversary, is typical.  

Rebalancing using the portfolio’s composition instead of a specific date is another strategy. For example, an investor may rebalance whenever one asset deviates more than a specific percentage of their chosen allocation. 

Rebalancing too often or at inopportune times may have a negative impact on portfolio performance. 

Don’t Overdiversify 

As with many things in life, having too much of a good thing can negatively impact your portfolio. You don’t want to overdiversify. Doing so could stunt your returns, increase transaction expenses, and increase your tax liability. Having too many investments can be challenging to keep track of and result in frustration and feeling overwhelmed. Some investors that reach this point grow increasingly frustrated and, in turn, stop investing or ignore their portfolios altogether. 

Diversification Doesn’t Eliminate Risk 

Successful investors typically manage their risk and decrease the volatility of their assets’ price movements through diversification. Keep in mind that even with diversifying a portfolio, there will always be some degree of risk. While investors can reduce the risk of each individual stock, nearly every stock is impacted by overall market risks. Diversifying among various asset classes is a tool investors can use to strike a balance between risk and return. 

The Value of a Wealth Management Team 

Diversifying your investments and increasing your ROI can quickly turn into a full-time job in itself. However, you went to school to practice law and help clients, not to focus your day on investing. The good news is that you can have the best of both worlds with a wealth management team on your side.  

You can focus on your job as an attorney while your wealth management team keeps a close eye on your investments to ensure you make all the right moves. Hiring someone to help you manage your assets successfully can reduce your stress and increase your wealth. There are likely areas of investing that you find complex or even uninteresting. A wealth management team can make critical decisions about appropriate investments on your behalf. 

Mark Candler and Dave Owens of Maia Wealth are go-to wealth advisers for lawyers and law firms in Colorado. Specializing in debt reduction, investment management, retirement efficiency, and legacy planning, Mark Candler and Dave Owens are trusted professionals for attorney-focused wealth management strategies in the Denver metro area.