You are participating in your employer's 401(k) retirement plan. You have $16,500 invested in a conservative bond fund that has a year-to-date return of 1.4%. You also have $15,000 invested in a conservative large-cap fund that has a year-to-date return of 8.3%. You like the returns of the large-cap fund, but you like the safety of the bond fund. You also think that it might be time to pick at least one more fund to diversify your holdings, or maybe start investing in stocks instead of funds.
What will you do? Why?
The choice of another fund or stock depends on the risk appetite and return expectations of the investor. As the investor already has some investment in Bond and Large cap equity, the investor can try to diversify his portfolio by investing in a different asset class.
Depending on the liquidity requirement, the investor can opt for an exchange traded gold fund. As per general expectations, during the time of economic slowdown, most investors look at Gold as a safe haven asset. Due to the surge in demand prices would highly likely go up. An investor can expect gold prices to appreciate in the near future.
The investor can also invest in an index fund which tries to replicate an index like S&P 500. This would immediately bring in some amount of diversification.
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