All of us would have heard the maxim ‘don’t put all your eggs in one basket. Well, it is wise advice to follow if you are into trading. Putting all your capital in just one stock or one type of instrument could lead to your losing everything in one stroke.
If you put (invest) your money in various assets, a few of them will likely earn you profit even if some of them might go bust. One of the easy ways to mitigate risk while trading stock is to put your money in various assets. Opening a multi-function account or a multi-asset account is the ideal way to do that.
Key points
- A multi-function account is an investing strategy where investors diversify their portfolio with two or more varied types of assets
- Stocks are the commonest asset to trade, but other popular investment choices include bonds, real estate, gold, and currencies (including forex)
- It is possible to outsource investment to professionals who handle asset diversification by purchasing a target-date fund or a target-allocation fund.
What is a multi-function account?
As mentioned above, a multi-function account is a wise way to reduce the risk associated with trading. It involves holding two or more different types of assets in your portfolio. This strategy can ensure your success over the long term.
Assets in this context would mean investing in various financial instruments such as stocks, bonds, gold, forex, real estate, or other such types of assets. It is better to avoid investing heavily in any one of these assets to avoid the risk of losing it all.
However, buying stocks in different companies or buying different assets is just the first step towards diversification. A multi-asset account will make sure that you can invest in any of these assets to reduce your risk. One of the common ways of risk management is balancing your portfolio by buying stocks and bonds. Even if you buy bonds, which are traded just like stocks, the fact that they both are different assets with different risk potential works in your favor. If you buy both stocks and bonds, you are practising multi-asset investing.
How does it work?
There are several ways to work out a multi-asset investing plan. However, firstly, you need to understand the various asset classifications. Although stocks and bonds make up the bulk of most portfolios, there’s also currency (including foreign exchange), real estate, commodities, precious metals, and more.
A truly diversified multi-asset trading account will have a mix of many of these, if not all of them. In such a scenario, if any of the assets underperform or outperform at any time, the investor will be able to handle it well. A multi-asset portfolio will work against volatility and major market swings.
It is not difficult to diversify through a multi-asset trading account as most brokerages offer a wide range of options for trading. Also, no matter what type of asset you wish to add to your portfolio, you can probably get an ETF, mutual fund, or other instruments.
One of the downsides of multi-asset trading accounts is that it may result in lesser returns as some assets are negatively correlated. It means that as one asset gains value, another will lose value. Hence, if one of the asset classes outperforms the other asset classes, it may have to compensate for some of the losses incurred by the portfolio.
Types of multi-asset trading investments
You can choose from several types of multi-asset class investments, such as:
Personal portfolio
If you have enough capital, you can choose to become your own asset manager and build a multi-class portfolio. Some family businesses provide clients with personal asset allocation based on the client’s investment preferences.
Risk tolerance funds
Several mutual fund companies offer multi-asset class funds specifically designed to cater to the investor’s risk tolerance. If you have a higher risk tolerance, you can choose aggressive funds with a higher equity allocation. However, if your risk tolerance is low, it makes sense to opt for a conservative fund with a higher allocation in safer assets.
Target date funds
Certain companies offer multi-asset investment options with asset allocations that change after a specified period. For instance, if you are retiring in 10 years, you can choose a fund with a higher allocation of equities in earlier years. However, as it gets closer to the target date, the fund will shift to lesser equity exposure options so that risk is minimized.
Hedge funds
Hedge funds use multi-asset investment by investing in both traditional and alternative asset classes.
Apart from these, there are several other investment options available for you. The main advantage of these investments is that they offer a chance to create a highly diversified portfolio and earn profits with lesser risk.
Benefits of multi-asset trading accounts
That brings us to the several benefits enjoyed by the multi-asset trading accounts to an investor. Some of them are:
They generate returns while managing risks
These accounts offer the investors exposure to a wide range of asset classes, sectors, and investment strategies, without exposing the individual to high risk. It is an opportunity to invest in diverse assets to mitigate some of the inherent market risks.
Specific and measurable investment objectives
It is possible to invest in specific measurable goals if you choose a multi-asset trading account. There is no benchmark to measure against, which means you can set your own goal and achieve them at your pace and time. It is possible to achieve a specific investment objective such as a target return.
Dynamic management
These accounts are specifically designed to navigate market changes through tactical trades and exposures. It is possible to respond to changes in the market and seek greater returns through tactical allocations.
Quick adaptation of underlying market conditions
Multi-asset trading accounts make it possible to make actively managed investments that can be swiftly changed to suit a certain asset class, sector, or security. They offer you the ability to adapt your investment to changing market conditions.
Access to top-class investment managers
These accounts are handled by expert investment managers who can spot the best investment opportunities and offer you the best advice. So, they give you access to the best in the industry.
Drawbacks
As with any other accounts, the multi-asset trading account has some drawbacks such as:
Negatively correlated assets
Multi-assets include several types of assets, some of which share a negative correlation. It means that if one goes up, the other comes down in value. Hence, you may not always get the maximum return from the asset as in the case of an exclusive trade account.
Little say in investment strategy
Most of the multi-asset trading accounts are managed by portfolio managers. They make the decision on your behalf and many times they might make an investment in a different sector or asset from your choice.
So, the multi-asset trading account can be a blessing if you choose the right brokerage or agent to invest on your behalf.
Trading on all major stock exchanges
The first step towards trading in stock exchanges would be to open an account with a trusted brokerage. Choose one with a proven track record and credibility. Once you open the account, take time to understand the account, the interface offered.
Learn as much as you can on stock and financial markets. Follow the market every day and learn about the overnight price actions of foreign markets. Analyze the information and learn how the stocks can move up and down depending on various factors.
Once you arm yourself with enough information, practice your trade. Use the demo accounts or simulators to get the hang of the actual market. Once you practiced enough, start trading with real money. Use the strategies you learned while practising and analyze the moves closely.
Address position and risk management as you start trading. Allocate funds to your portfolio and manage your capital according to your risk tolerance. Trading stocks can earn you good returns, but it may also result in huge losses. However, you can mitigate some risks by investing in bonds. Choose a mix of stocks that you feel confident to trade according to your research and analysis.
You may have to pay a commission to the brokerage for their services. Make sure you consider that while calculating your risk and profitability.
Conclusion
Multi-asset trading is a great way to reduce risk in trading and investment. Your strategies can help you earn a profit over the long term. One of the greatest advantages it offers is you can trade in various assets through one account. You don’t have to maintain separate accounts with various brokerages/agencies for different asset classes. As everything is available under one umbrella, it becomes easy to trade and also to track your investments. It also facilitates trading on various stock accounts.
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