5 Tips for Building a Diversified Investment Portfolio
About 27% of Americans already invest in the stock market. However, many lack a diversified investment portfolio. Neglecting to diversify could become a financial risk.
Here are five tips you can use when building an investment portfolio. Using these tips will ensure you don’t put all your eggs in one basket.
Read on to discover the top investment portfolio ideas you can use to minimize your risk today.
1. Explore Industries
Many people think finding a balance of stocks and bonds ensures they have a successful investment portfolio. However, that’s only one way you can diversify. Try diversifying by exploring different asset classes, industries, and specific sectors as well.
If you have a majority of your investments in a single area, consider trimming back. Consider investing in companies you use daily, know, and trust.
You can also invest in exchange-traded funds (ETFs) and real estate investment trusts (REITs).
Spreading your risk around can lead to bigger financial rewards. However, don’t go too far. Try to keep your portfolio manageable.
Limit yourself to about 20 to 30 investments.
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2. Use Index Funds
Try adding fixed-income funds or index funds to your portfolio. Look for securities that track various indexes to diversify. This strategy will allow you to hedge your portfolio against market volatility and uncertainty.
These funds usually come with low fees, meaning more money in your pocket. They’re also a hands-off investment option.
As you begin applying these investment portfolio ideas, make sure to continue building your portfolio. Use dollar-cost averaging to invest money on a regular basis. Buy more shares when prices are low but fewer as prices rise.
3. Consider Cash
Don’t neglect to consider cash. While cash can lose its value over time due to inflation, it also protects you in the event of a market selloff.
Cash can minimize the risk of a portfolio decline during a downturn.
4. Think Global
Don’t limit yourself to local options. Instead, look into the global economy. Explore emerging markets or countries that grow at faster long-term rates, like China.
Thinking globally will protect you from negative events that exclusively impact your country.
However, it’s sometimes difficult to invest in emerging markets in undeveloped economies. Diversify slowly to minimize your risk.
5. Use Periodic Rebalancing
The size of the holdings within your portfolio will change based on each investment’s performance. To maintain your newly diversified investment portfolio, consider rebalancing occasionally.
You shouldn’t need to rebalance more than once every quarter. Schedule time to rebalance every few months. Note when holdings are performing strongly and which are beginning to decline.
Start Building a Diversified Investment Portfolio Today
Neglecting to diversify when building an investment portfolio could put your funds at risk. Instead, use these tips to maintain a diversified investment portfolio throughout the year. Don’t forget to review your investments every few months to make necessary changes.
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