Diversifying Your Portfolio

You get a dollar, you get a dollar, and YOU get a dollar – okay, so maybe investing isn’t an Oprah episode, but that’s the general idea behind one of the most crucial parts of investing - diversifying your portfolio.  

Don’t even have a portfolio yet? What are you waiting for? Start here: Building Your Portfolio and Aggressive Portfolios.

The goal of diversification is to manage your risk by spreading your money around. We all know how unstable and unpredictable the market can be.  Diversifying your portfolio eliminates the extreme ups and downs and reduces your investment risk. Not having a diverse portfolio is one of the biggest mistakes new investors make.

Tips for creating a diverse portfolio 

  • Consider spreading your investments into each of the different assets: stocks, bonds, and cash equivalents. According to the SEC, a diversified portfolio should be diversified at two levels: between asset categories and within. 
  • Aim for variety, not quantity. Avoid putting all your investments into one specific sector and invest in a variety of companies you trust.  
  • Move beyond the industry your town is famous for. For example, people of Detroit who also invested in the automotive industry probably had a rough few years. Another great option is to expand your investments into international markets.

  • Your portfolio should always be evolving. Your portfolio at 25 should not be the same as your portfolio at 50.  The younger you are the more extremes you can handle because you have time to adjust so don’t be afraid to take a little risk.   
  • Mutual funds can be a great and easy way to diversify your investments. Mutual funds are investment programs funded by shareholders that trades in diversified holdings and are managed professionally. You can have a diversified portfolio in just one investment. With that being said, be familiar with your funds. Investing in one mutual fund doesn’t always mean you’re diversified.

Finding the perfect investment mix for you on your own can be a challenging task, so we recommend jumping right into things with MyRetirementPlan to create the perfect investment plan for you.   

Remember, diversifying your profile is crucial for investment success. For additional tips to diversify your portfolio, visit Investopedia and Forbes. Be sure to keep up on our blog for additional portfolio advice and investment tips.