The stock market is volatile, always fluctuating for better or worse. Since you can never be sure of where the market trends will go at any moment, having a well-diversified portfolio is crucial. Seasoned investors diversify their portfolios to reduce their risk in their investments, increasing your chances of hitting big.
Here are five ways to diversify your investment portfolio:
Get International Exposure
Although most investors are biased toward domestic securities, diversifying your portfolio requires international exposure too. You can securely achieve this by investing in foreign companies and stocks with international asset protection services — giving you a safe start toward portfolio diversification. Doing this helps you protect your investments, giving you the chance to make riskier and profitable moves.
Invest in Multiple Companies
Although equities can be lucrative, don’t put all your money in a single stock or industry, especially if you want to diversify your portfolio and get more investment chances. Consider making your virtual mutual funds by investing in a couple of companies you know, trust, and use in your daily life. However, stocks aren’t the only thing you should consider. You could also invest in commodities, real estate, and exchange-traded funds. Plus, don’t stick to your home base — and think beyond and go international. Doing this helps you spread your risks, leading to more significant rewards.
However, don’t fall too far and ensure you keep yourself to a manageable investment portfolio. After all, there’s no sense in investing in 100 different cars when you don’t have time, money, and resources to keep up with its demands. So, try to limit yourself to around 20 to 30 various investments — and expand from there.
Consider Index or Bond Funds
To diversify your portfolio efficiently, consider adding an index for fixed-income funds to your investments. Investing insecurities tracking different indexes makes a lucrative long-term diversification investment for your portfolio. Doing this gives you an edge against market volatility, ensuring better growth. The best part is, these funds often come with low fees, making it a profitable venture to tackle. The management and operating costs are minimal due to what it takes to run these funds.
Contribute to Investments Regularly
A simple and efficient way of diversifying your portfolio is by adding to your investments regularly. For instance, if you have $20,000 to invest, utilize dollar-cost averaging. Following this approach can help smoothen out the trends created by the market’s volatility. The idea behind this diversification strategy is to cut down your investment risks by investing the same amount of money over a specified period.
With dollar-cost averaging, you can invest specific amounts regularly into a specified portfolio of securities, helping you buy more shares when prices are at an all-time low and fewer when prices are high.
Customize Using Individual Stocks and Bonds
If you have the money and knowledge to further portfolio diversification, you can build a more ‘customized’ investment portfolio using individual stocks and bonds. The ratio of stocks to bonds and money you use will depend on your specific goals, timeframe, and risk tolerance. For long-term goals or those with time horizons of more than 20 years, it’s best to go with 90% stocks and 10% bonds.
Additionally, when diversifying your investment portfolio using a mix of stocks and bonds, make sure they ‘behave’ differently. That’s because ‘diversification’ isn’t just a matter of holding several assets at once, but holding investments that move independently or oppositely. You’ll want to own enough to diversify each investment’s specific risk.
By taking a disciplined approach to investing through diversification, you may find the practice to be rewarding even in the worst times—and when implemented correctly, the strategies mentioned can significantly improve returns and lower portfolio risk over time, ensuring long-term success.