Why is Diversification Important?

December 18, 20225 min read
Why is Diversification Important?
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If you’re like most Americans, your knowledge of investing may start and end with the stock market. And when you think of diversification, you may only be thinking of a mix of stocks and bonds. While it’s important to vary your stock holdings, this strategy may still leave you largely exposed to significant market swings. 

To put this in perspective, according to the 2019 August AII Asset Allocation Survey, stocks and stock-based funds made up over 64% of total investments in the United States. This is a massive amount of money that Americans have hinging on the stock market. But too much dependency on one thing can be risky. 

In order to minimize your risk, let’s take a look at why diversity can be key, what you should do to create a defensible portfolio, and how Yieldstreet products—such as the Yieldstreet Alternative Income Fund—can provide you with immediate diversification of your portfolio.1

Reducing exposure

Just like exposing your skin to too much sun, exposing your investment portfolio to too much of one asset class isn’t a great idea. Whether you’re a long-time investor with decades of experience, or just beginning your investment journey, we believe allocating investments across a number of classes may be a best practice. 

What does this look like?

Creating an investment portfolio with assets independent of one another helps reduce your exposure to the market and curb volatility. For example, a well-diversified portfolio might include a mix of:

  • US stocks
  • Bonds
  • Foreign stocks
  • Alternative investments (i.e. real estate, art finance, etc.)

But why?

We’re not saying that the stock market is bad. But the economy is cyclical, and recessions happen. Investing in a carefully-curated selection of assets helps ensure that if one portion of your portfolio takes a hit (such as US stocks) the entire value of your portfolio won’t plummet.

Variety is not diversity

A common mistake among investors is thinking that variety equals diversity. It does not. Take our original example above. Maybe you’re regularly contributing to your 401(k) and max out your contributions to a traditional or Roth IRA. You may also contribute to a 529 college savings plan for one or more children. But this variety of investments doesn’t amount to a diversified portfolio. Take a closer look and you’ll see that 401(k) plans, IRAs, and college savings plans are typically comprised of stocks. So if the stock market takes a tumble, regardless of your portfolio’s variety, you aren’t in a position where diversity will help minimize potential losses.

So, how do I diversify?

As a savvy investor, you understand that reducing your exposure to the stock market and diversifying your portfolio helps protect you from fluctuations in the market. But how do you start diversifying? As a retail investor, diversity has not always been an easy option. Access to asset-based investments historically was reserved for high-net-worth individuals and institutional investors. 

Alternative investing, however, is now more accessible to individuals. Yieldstreet, for example, allows you to invest in asset classes such as commercial and residential real estate, art finance, and portfolios of legal cases. Our offers are often asset-backed, which means your investment is backed by real assets, as opposed to more traditional stocks and bonds. 

Invest through the Yieldstreet Alternative Income Fund

We believe that reducing your exposure to the stock market, coupled with access to alternative assets, such as those Yieldstreet offers, can allow you to build an alternative portfolio with the potential for diversification. 

Our investors have access to a portfolio builder through the Yieldstreet Alternative Income Fund. This fund allows you to make a single allocation across multiple asset classes. In turn, this helps provide your portfolio with immediate diversification.¹

The journey to financial health is a marathon, not a sprint. Roadblocks and detours are expected and normal along the way. Diversification, however, is your key to staying on track and getting the most out of your hard-earned money.

You can learn more about investing in the Yieldstreet Alternative Income Fund by reading: What is the Yieldstreet Alternative Income Fund?

To familiarize yourself with the details of the Yieldstreet Alternative Income Fund, it is important that you review the prospectus, available for download on this page.

A discussion of the Fund’s expected expenses and dividend yield has recently been updated on the Fund’s website, yieldstreetalternativeincomefund.com, and should be reviewed carefully, along with the investment objectives, risks, charges, and expenses of the Fund contained in its prospectus, before investing.

Investors should carefully consider the investment objectives, risks, charges and expenses of the YieldStreet Alternative Income Fund before investing. The prospectus for the YieldStreet Alternative Income Fund contains this and other information about the Fund and can be obtained by referring to yieldstreetalternativeincomefund.com. The prospectus should be read carefully before investing in the Fund.

Investments in the Fund are not bank deposits (and thus not insured by the FDIC or by any other federal governmental agency) and are not guaranteed by Yieldstreet or any other party.

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1The YieldStreet Alternative Income Fund is a non-diversified closed-end fund for purposes of the Investment Company Act of 1940, as amended (“40 Act”), and is therefore not a 40 Act “diversified” product.

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7 Investors should carefully consider the investment objectives, risks, charges and expenses of the Yieldstreet Alternative Income Fund before investing. The prospectus for the Yieldstreet Alternative Income Fund contains this and other information about the Fund and can be obtained by emailing [email protected] or by referring to www.yieldstreetalternativeincomefund.com. The prospectus should be read carefully before investing in the Fund. Investments in the Fund are not bank deposits (and thus not insured by the FDIC or by any other federal governmental agency) and are not guaranteed by Yieldstreet or any other party.

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9 Statistics as of the most recent month end.

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