#220 How to Build a Diversified Investment Portfolio ft. Peter Kim, MD - Passive Income MD Shop

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#220 How to Build a Diversified Investment Portfolio ft. Peter Kim, MD
Episode #220

#220 How to Build a Diversified Investment Portfolio ft. Peter Kim, MD

In this episode, Dr. Peter Kim dives deep into the world of smart investing, helping you craft a diversified investment portfolio that works for you. We’ll explore key strategies for asset allocation, discuss how to prioritize cash flow, and uncover the power of income-producing assets. Dr. Kim will also guide you through balancing your risk tolerance with your long-term financial goals, empowering you to build a portfolio for lasting success. So, whether you’re a seasoned investor or just starting out, tune in for valuable insights and take your investment portfolio to the next level!

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11.19 Min • July 15

Episode Highlights

Now, let’s look at what we discussed in this episode:

  • Why should you diversify?
  • What should diversification look like?
  • How do you split your assets?
  • What are the standards?

Here’s a breakdown of how this episode unfolds.

Episode Breakdown

[00:30]

Why should you diversify?

Diversification is the cornerstone of a robust investment portfolio, Peter advises.

By strategically allocating your assets across various uncorrelated holdings, you can significantly reduce risk, especially during volatile market downturns. He recommends holding a diversified portfolio of 10 to 14 assets to limit potential losses and build a more secure financial future fueled by passive income streams.

[02:19]

What should diversification look like?

Peter highlights the use of broad-based index funds, popular among financial advisors, for achieving diversification. These funds hold a large number of stocks, helping to manage risk. While index funds tend to track overall market growth, there can be periods of flat growth or decline.

Therefore, relying solely on index funds may not be ideal for everyone, especially if you need cash flow in the near future (e.g., the next 3-5 years) and the flexibility to potentially reduce work hours. The key takeaway is that an index-only portfolio’s suitability hinges on your financial goals and timeline.

Dr. Kim emphasized that a diversified portfolio should consider a variety of asset classes. This includes US and international stocks for growth, bonds for stability, real estate for potential income and inflation protection, commodities for diversification, and even alternative investments like private credit and angel investing for potentially higher returns.

[06:23]

How do you split your assets?

Building a strong portfolio requires prioritizing and diversifying assets based on several key factors.

These factors include understanding your investment goals, time horizon, risk tolerance, and personal circumstances. Peter emphasizes the importance of first assessing your individual needs, financial stability, and future plans before deciding how to allocate your assets. You can begin by understanding your risk profile and financial goals. This will help you choose the right investment vehicles, whether it’s something potentially high-risk like cryptocurrency or a more stable option focused on consistent returns.

Peter would also recognize that personal experiences and life stages will influence your strategy. Things like family responsibilities, income level, and how soon you want to be financially independent all play a significant role. Peter advises you to explore different investment options, gain knowledge, and consider starting with smaller investments to test the waters before allocating larger sums. This will help you build a diversified portfolio tailored to your specific needs.

[09:21]

What are the standards?

Peter concludes by delving into the standards portfolio allocation, emphasizing the need to balance cash flow with long-term investments.

He acknowledges the traditional asset allocation model of 90% in index funds and 10% in alternatives. However, Peter introduces his perspective, prioritizing cash flow. He suggests allocating 70-80% towards income-producing assets like dividend-paying stocks or real estate investment trusts (REITs).

This strategy, according to Peter, offers more flexibility to adapt to changing circumstances, emphasizing the importance of having diversified income streams, which provide greater financial control and security. Overall, Peter stresses that careful consideration of portfolio diversification and income sources is key to achieving financial stability and independence.

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