In order to reach your own investment goals, whether they are for retirement or just to grow your financial worth, a lot of careful planning must go into your strategy. Nothing can hinder your investment portfolio more than a lack of diversity within it, so what exactly can you do to help build up your portfolio so that it contains a better asset mix that ensures its success?
Here are a few ways you can diversify your investment portfolio:
- Expand Your Reach
While equities are great to own, it is best not to invest entirely in the same stock or the same sector – instead, try going for a small handful of companies that you know are reliable and maybe ones that you even use in your everyday life.
Sometimes it is said that it is not helpful to invest in things you know as it may lead you towards mainly retail industry equities. However, knowing a company through the experiences of using their services or goods can be a decent approach to expanding your investments.
- Narrow Down Your Investments
Consider decreasing the total number of investments that you own. While there isn’t an official “proper” number that is recommended for you to own, it is definitely possible to have too few or too many.
For example, once you own more than six, you probably are venturing towards things that you don’t need or have too much overlap over your various investments. The truth is that you can get any foreign and domestic diversification that you’d need with the basic three index funds: a total international stock fund, a total U.S. bond market fund, and a total U.S. stock market fund.
Pro Tip: Something to keep an eye out for is seeing whether or not you suffer from overlap, meaning that across several investments you happen to own securities that are the same.
- Continue to Build
After you have narrowed down your scope and made sure to minimize the amount of overlap you face, you can begin to thoughtfully add to what you already own. A common approach for money investing is the dollar-cost averaging strategy. This is when you put your money into things regularly and intentionally into specific funds and stocks as a way to try to smooth out any unevenness caused by market volatility.
While you should continue to build, you should also make sure you know when to get out. Simply because all of your stocks and funds are on autopilot doesn’t mean everything will handle itself – you still need to stay up to date on the current market conditions and what is happening to the companies that you own stocks for.
Building your portfolio should be an educational and fun experience and utilizing any diversification strategies can make the process all the more rewarding.
- Strive to Truly Understand Everything
There is a difference between having a vague understanding of what you’re doing and knowing the depth of the intricacies involved in this process. Simply knowing what kind of stock or fund you own and how much guaranteed return you receive isn’t enough information; knowing how that return is calculated and knowing what your guarantee is truly being applied to is what you need to be familiar with. Understanding the calculations can imply what you can expect for the return. If you are unclear about how the system actually works, then you can never be sure if it is worth it for you or not.
Some programs out there are designed to help investors on all levels learn the system better and to optimize their strategies with online stock brokers, IRA, or even a 401K. Finding a reliable training course and investment model can be extremely useful. For example, Uppercase Capital is an experienced training course that has overseen investment systems for almost 30 years. Enhancing your own knowledge through investment advising tools can put you in a better position to make smart investments.
