When people talk about investing money, one important rule is called diversification. This means spreading your money across different kinds of investments, so if one type does poorly, others might do well. This can make your overall investment safer.
Real Estate
Real estate means owning land or buildings to make money. There were times when real estate investments, like real estate investment trusts (REITs), didn’t change in value along with stocks. For example, in the early 2000s, they sometimes barely moved with the stock market, which helped investors. But in the last few years, real estate has started to move more like stocks. This change has made real estate less of a safe choice when the stock market drops. While it used to fare better during market downturns, it has lost a lot during recent tough times.
High-Yield Bonds
High-yield bonds are loans given to businesses that aren’t considered very safe, usually rated BB or lower. Because they carry more risk, they can fluctuate with the economy and the health of the businesses more than safe investments like U.S. Treasury bonds. While they can sometimes offer some protection against market drops, they often fall in value when stocks go down too. On the other hand, U.S. Treasuries are better at keeping your money safe during bad times.
Cryptocurrency
Cryptocurrency, such as Bitcoin, is entirely online and different from regular investments. Although Bitcoin is the most famous, there are other digital coins too. In the beginning, cryptocurrencies didn’t often move with other investments. However, as more people started investing in them, their values began to change more with stocks. Additionally, cryptocurrencies are super volatile, which means their prices can go up and down very quickly. For example, Bitcoin is four times more volatile than stocks, making it risky as an investment option.
Key Takeaways
This article highlights two important points. First, the way assets behave together can change over time, so what worked well for investors before might not work now. Second, even if an asset has a low correlation (meaning it doesn’t often move with other assets), it can still be risky.
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