What Does Diversifying Your Portfolio Actually Mean?

Christians all over the globe are familiar with the Parable of the Talents, which Jesus uses in Matthew 25:14-30 as a metaphor for investing the ability to do God’s Word in a way that yields maximum impact. In actual financial matters, most would prefer to be like the servant who doubled the greatest number of silver talents—but the Bible doesn’t give much detail on his investing strategy. 

You may have heard that it’s generally wise to diversify your investment portfolio. But, what exactly does that mean? At a glance, diversifying your portfolio means placing money in a variety of investment types (such as domestic stocks, bonds, short-term investments, and international stocks) in order to maximize profits while minimizing risk. For example, placing some of your funds in an asset type not tied to the stock market (such as bonds and CDs) can help balance out the risk of those that are susceptible to market volatility.

How to Diversify Your Portfolio

As you invest funds in various areas, it’s important to have a diversification strategy within each category as well. For example, in addition to investing in stocks, you might consider exchange-traded funds (ETFs) or real estate investment trusts (REITs), both in your community and abroad. Placing money in index funds or fixed-income funds also helps provide a buffer against market vagaries.

Another strategy to pair with a diversified portfolio is tax diversification. This means having a mix of tax-advantaged, fully taxable, and tax-free investment accounts. Managing all three types can help reduce your tax burden in the short term as well as during retirement.

Having a well-rounded collection of investment and tax types makes financial sense for any investor. As a Christian, however, you likely prioritize good works alongside or even over financial profit. If so, you may be interested in impact investing, also known as socially responsible investing (SRI). Impact investing supports and generates revenue from causes aligned with your faith and values. It’s still important to diversify your impact portfolio: you can invest in a variety of socially responsible companies, lend money to nonprofits, or make donations or grants to charities.

Philanthropic Capital and Charitable Money Management 

One benefit to a diverse impact portfolio is gaining philanthropic capital, which you give to a nonprofit organization like a foundation or donor-advised fund. Since you will no longer own or profit from this capital, it can’t negatively impact your assets, which makes it a risk-free way to serve the missions of your choice. 

Donor-advised funds (DAFs) are increasingly popular ways of investing philanthropic capital. In a donor-advised fund, donors can choose between short- and long-term plans that support charities anywhere in the world. The Canadian National Christian Foundation (CNCF) wants to help investors do exactly that through their CNCF Giving Fund. Donors can instruct their financial advisors to work with the CNCF on their behalf, managing and growing the money in that fund. No doubt the servant with the five talents could have used their help!

If you’re ready, click here to connect with CNCF and diversify your impact portfolio, multiplying your philanthropic silver with a Christian donor-advised fund. CNCF can work with you and your trusted financial professional or help you find a Canadian Christian Financial Advisor near you!

About Canadian National Christian Foundation

CNCF is a community of givers who are seeking to advance the Kingdom of God by connecting the resources God has entrusted to them with His work on earth.

Similar to other public foundations, CNCF’s difference is the commitment of its staff and directors to the Word of God, its non-denominational history and status as a Christian foundation, and its ability to allow donors to donate anonymously, at a time and gift value of their choosing.  Learn more by visiting our website.