3 Tips for Investment Diversificaion

Investment diversification is one of the most important factors to success for an investor. Properly diversifying your portfolio can go a long way towards helping you minimize your risk. Here are a few tips to keep in mind for investment diversification.

1. Diversify Your Stocks

When you invest in the stock market, you want to do the best that you can to invest in many different stocks. You should not put all of your money into one or two individual companies. If you do this, you are putting yourself in a big position of risk. Instead of doing that, you can put money into companies from different sectors of the market. For example, you might put some money into a company in the health care field and some money into the transportation sector. You want to try to vary your stock selections so that they are not all from the same industry or sector.

2. Different Asset Classes

In addition to diversifying the stocks that you hold, you will also want to diversify your asset classes. This means that you want to put some money into several different types of assets. You will want to put a certain amount of your funds into stocks, a certain amount into bonds and some into other types of assets. By doing this, you are going to be able to deal with systematic risk more effectively. You are not going to have to worry about a stock market crash or something that can negatively affect one type of investment. Since your money is spread around through multiple investments, you are going to be much safer in the long run.

3. Mutual Funds

If you want to be properly diversified, you should also put a good portion of your money into mutual funds. By investing in mutual funds, you are going to be putting your money into a diversified portfolio that is already made for you. Mutual funds allow thousands of investors to pool their money together and buy many securities. Most individual investors do not have the money that is necessary to completely diversify their own portfolios. Most experts say that it would take at least 100 different stocks in a portfolio before you could begin to be effectively diversified. When you put your money together with other investors, you can buy millions of dollars' worth of securities.

When you invest in mutual funds, you do not have to put your money into funds that invest only in stocks. You can put money into mutual funds that have money in many different types of asset classes. You can buy into balanced funds, blend funds and other types of funds that focus on multiple forms of asset classes. Some of these funds will diversify within the stock market. Other mutual funds will diversify by owning some stocks and some fixed-income securities. You can even buy mutual funds that invest in other mutual funds for supreme diversification.

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