By Saghir Aslam
Rawalpindi, Pakistan
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live in security and dignity and fulfill their religious and moral obligations towards charitable activities)
Q. If I’m investing in a mutual fund, isn’t automatically diversified?
A. It could be, as many mutual funds invest in a wide range of different companies and even different asset classes, or in other mutual funds, such as target date funds. But while most mutual funds include a variety of investments, it doesn’t necessarily mean they’re well diversified. “You could invest in a fund that is made up of same kinds of companies, perhaps a single sector of the U.S. market.”
Q. Is it possible for my investments to be over-diversified?
A. It’s far more likely that you could add assets to your portfolio-in order to be “more diversified” -that really wont make much difference to your risk or return expectations. “For instance, if you already hold a well-diversified bond fund and you buy another three or four similar funds, you’re not changing your portfolio in any meaningful way.”
Plus, you could be adding unnecessary complexity to your life, particularly if you’re buying similar funds on your own from several different fund companies.
There are many areas of Diversification as explained above. There’s even diversification within each territory of the stock market. For example, diversification in conservative investing, middle of the road investing and aggressive investing. Emerging companies, small companies and the companies with a long term track record. You just have to sit down and formalize your plans.
We touched briefly, for the sake or diversification invest in real estate. Matter of fact if you look at the history of real estate in the last 20-30 years it has appreciated considerably. In real estate you’re not only getting appreciation but you’re also getting tax benefits by the depreciation of your property.
Diversification in real estate, you could invest (purchase) single family homes or condos for rental, OR, buy small apartment units. Small would be considered 4-8 unit apartment buildings. To go into the larger apartment building with lots of units anywhere from 20-100 units is another way of investing. If you want to diversify further you can start buying small business places to rent.
In the stock market, angel investing OR startup companies is another way of diversification but in the basket of angel investing you should only put the money that you can afford to lose. Here
You are taking a big chance some of the startup companies don’t go anywhere the management gets the salaries the rest is absorbed in other expenses, on the other hand. Had you invested in the startup companies like Amazon, Google, Cisco, Microsoft, Intel, Facebook and others you would have made tremendous amount of money in a short period of time you could have made many folds. In some of these companies you could have invested 100 dollars which would literally grow up to thousands of dollars.
If you are very busy and do not have much time then you can start searching and looking for money managers. That is a job in itself but it’s much easier than investing on your own. This way your main job is try to find the top notch money managers with the lowest quarterly fee, once you have done that then your job is to monitor them on an annual basis. But do check their performance quarterly, this could be one of the excellent ways to invest for the busy executives.
Emerging markets. Emerging markets locally more important internationally. Once again like the Angel investing somewhat similar to angel investing, possibly you could reap excellent benefits and great returns from emerging market investing.
To do any of the above you need to do a thorough research, have a specific plan, invest according to the plan, remember not to ever invest up hazardly. Always do your homework before investing any amount at all.
(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)
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