Diversifying with HIBA (High Interest Bank Account)

When it comes to growing money, nearly everyone from the streets to Wall Street has heard of this magic word in the investor’s dictionary — “diversification.” It is the simplest and yet most mysterious end-all solution to everything about money management.

But recently, the landscape has been shifting, and it’s important for anyone who cares about their money to stay informed to make informed decisions on portfolio diversification.

2019 has observed a noticeable shift away from old-fashioned active fund managers towards passive mutual funds. Rising players include index funds, collections of stocks that mirror the gains and losses of an entire index and produce relatively stable returns in the long run.

In the second quarter of 2019, net inflows into index funds have risen by nearly 50% as compared to the same period a year ago. Indexing giants are now managing trillions of dollars, with the Vanguard Group experiencing an influx of $57.3 billion in inflows this quarter. According to a Wall Street Journal analysis, virtually every S&P 500 has either BlackRock, Vanguard, or State Street as an at least 5% owner.

Consequently, the growth of passive-investment giants has become a huge threat to their active fund management counterparts. Net outflows from actively managed funds in the second quarter of 2019 nearly doubled from the year-ago period as margins have also been choked out by low-cost indexing and fee wars between active managers.

But either way the table turns, both active and passive managers have been pushing for more lucrative strategies under fund options with lower liquidity — essentially locking up investors’ cash for longer periods. A portfolio composed of only investment assets with low liquidity has the potential for long-term gains, but is also highly risky.

Ultimately, diversification really is the name of the game here. Balancing your investment portfolio with a reliable, liquid, and high-paying interest savings account is as essential as holding on to a diverse collection of bonds, stocks, mutual funds, real estate, etc.

(Currently, Beam is offering one of the most competitive interest rates on the market for savings accounts that offer 2–4% APY with no lock-up, no fees, and no minimum.）

At the end of the day, when you start building your savings and investment, it’s a good idea to learn all that you can and start slow. Figure out the landscape and how much risk you can handle. That will dictate the kind of diversified portfolio you own.