It’s time to diversify your investments
May 20, 2020
The novel coronavirus has given way to some unusual business and economic headlines over the last two months. A rollercoaster couple of months for the stock market. Speculation of an impending housing or rent crisis. The possibility that Jeff Bezos may become the first trillionaire due to Amazon’s surge in revenue.
Yet, perhaps nothing was more unexpected than last month’s precipitous drop in oil prices. In late April, overproduction and decreased demand caused the per barrel price of crude oil (for contracts to be delivered in May) to slip below $0. Investors on both the macro and micro-scale, from the governments of Saudi Arabia and Russia to small local capitalists, were left reeling as their petroleum assets lost literally all their value overnight.
While prices somewhat recovered in May, this episode illustrated a crucial concept in investment that all prospective venture capitalists should consider: diversification.
Diversifying your portfolio and investing in a plurality of industries can be an effective insurance policy against wholesale financial ruin when the economy begins to contract. When your money is spread across a multitude of sectors, rather than concentrated in one narrow market, odds are that at least some of your assets will stay above water when a recession hits. The more diverse your portfolio, the greater the odds your assets will continue to perform.
A shrewd investor should never, as the old saying goes, place all your eggs in one basket. I spend a lot of time considering many scenarios, but I had not factored in a global pandemic. Diversification helps protect against both the known and unknown.
Here are some of my strategies to help you diversify your portfolio.
1. Follow emerging trends, they’ll lead you in new directions
Diversifying your portfolio can often be a difficult task. While every investor wants a diversified set of assets, finding new industries in which to place your resources is often challenging.
An innovative way to go about this, though, is to follow emerging market trends. In my case, I often look toward the consumer products and experiences in which my kids demonstrate an interest. I use their preferences to help craft long-term investment strategies that pursue the products and experiences that will dominate the market in the coming decades.
This approach leads me in directions I would’ve never expected. A decade ago, I never imagined that I would have been invested in online video gaming or in fast-casual restaurants like Tocaya Organica. But by following nascent investment trends – and the things kids like to do or eat – I was led to two lucrative ventures that helped further spread out my portfolio.
You can follow suit simply by closely watching consumer trends – particularly those of future generations.
2. Take risks in pursuit of bold ideas
Investors can always diversify their portfolios by taking some calculated risks.
This could mean investing in a startup with an innovative new product that may not be profitable in the short-run. It could mean looking for investment opportunities overseas or in products that may face regulatory hurdles.
At my firm Spectrum Business Ventures, we strive to see the world differently. We look for investments in ventures that others overlook, we look for opportunity where others see none. And to do so we take risks – calculated risks.
When it comes to diversity, these risks often take us into uncharted territory. They’ve propelled us into rocket and satellite technology firms, biomedical R&D companies, novel restaurant and entertainment models, innovative consumer shopping technologies and improbable real estate acquisitions. Above all, though, our pursuit of cutting-edge innovation has broadened SBV’s portfolio.
Aspiring investors should do the same. Take smart risks in pursuit of bold new products or industries. You’ll end up with a well-rounded, diverse portfolio that has invested your money across a spectrum of industries, ensuring that you’ll have some cushion the next time we hit an economic bump in the road.