For many investors, the stock market crash of March 2020 was a chilling reminder that even a booming market can see a sudden drop-off.
If you haven’t already done so, you may want to consider this fluctuation as a wake-up call: it’s time to diversify your portfolio! While there may be uncertainty in every investment decision, a diversified portfolio can help keep you from losing everything in a downturn, as it’s rare for multiple (or all) markets to crash at once.
Not sure how to get started? We’ve got you covered. Here are some easy ways to ensure your portfolio is diversified.
1. Opt for Many Types of Investments
One quick method of portfolio diversification is making sure that you’re choosing different types of investments. If you want diversification without complexity, this can be a great first step.
This means working with ETFs, index funds, and mutual funds—in addition to stocks and bonds for less aggressive investment strategies. Don’t forget to invest in both domestic and international stocks, and you should consider real estate funds and asset allocation funds as well. All of these investment types will trade differently, so make sure you do your research.
2. Diversify Your Portfolio Within Investment Types
A diversified portfolio shouldn’t stop with different investment types, not when you can deepen the diversity from there.
When you’re buying individual stocks, pick investments that offer different rates of return and within different industries. This helps ensure that you aren’t putting all your eggs in one basket with a single stock.
3. Vary the Risk Level of Your Investments
Everyone has a different level of risk tolerance, which can depend based on your goals, age, and investment portfolio size.
However, that doesn’t necessarily mean that every investment you opt for should have the same level of risk. Within the parameters of the risk you can tolerate, try to pick investments with different rates of return. You might want to look at foreign stocks, as well as small-cap and mid-cap stocks, to balance your portfolio.
4. Revisit Your Investment Decisions
Investing isn’t a one-and-done process; you’ll need to circle back and make changes on a regular basis. This is especially true if there are significant changes to your financial situation or goals. Make sure to revisit your investment strategy once or twice a year, just to be safe.
This is much easier if you have a quick way to track your investments. You can use your client portal, or you can track your investments in a custom spreadsheet. Don’t forget about modern apps and software that simplify this, like the intuitive dashboard of Swapfolio.
Whatever you decide, having a record of your investments can help you make decisions as you diversify in the future.
Diversify Your Portfolio Today
Now that you know how to diversify your portfolio, there’s no time to lose—especially if your current portfolio puts all your eggs in one basket. If you take the time to research and do your due diligence before selecting new investments, your portfolio will tolerate much more risk in the years to come. Don’t forget to rebalance it often!
Looking for more helpful financial tips? Check out our other posts for the insights you need.
