Whether you’re an investing pro or you’re new to the game, it’s a good idea to always review your current investments, and ensure your portfolio is diversified. This will give you the best spread of risk vs. yield.
A well-diversified portfolio not only has the potential to really grow your wealth over time, but it will also help to protect you in case of economic problems or bad investment choices.
Here are 5 ways you can go about ensuring your portfolio is diversified.
1. Decide on a Plan Early:
One of the worst things you can do when trying to ensure that your portfolio is diverse is to take it as it comes. When you make a plan, you’re able to ensure that the companies you invest in fall within that plan.
There are a few things you should decide before investing.
- How long are you planning for the portfolio’s outlook?
- If you’re interested in a short-term portfolio, the diversification is going to look completely different than it would if you were focusing on the long-term.
- In addition, decide how much risk you’re willing to take overall. This will help you decide on the best investment options.
2. Select Different Types:
When you’re investing in a variety of companies, you’re going to be saving yourself from potential investment problems in the future, such as losing everything. Make sure that you’re selecting different types of categories to invest in. Don’t invest all of your money in bonds. Instead, consider the stock market, as well. The more variety you have in investment categories, the better.
Along with this, it’s important to make sure you’re investing in different types of companies within a category. If you decide to only put your money into fast food restaurants, your portfolio is not very diverse and is subject to a failing economy. However, you’re more likely to keep your investments steady if you invest in, for example, both fast food restaurants and shoe companies. This allows you to spread your money over a variety of options.
3. Readjust Investments:
Take a look at your portfolio. Do you have a significant amount of your investment money in a single stock? If so, you need to reevaluate and readjust the investments. If you have too much money in one area of your portfolio, you’re more likely to end up losing that money.
Instead, take the extra money that you have in that asset, and find other companies or investment opportunities to put it toward. This helps ensure that your portfolio is diverse and doesn’t have too large of portion of your money in one place.
4. Keep Adding Options:
Did you get a bonus at work, at the end of the year? Put that extra money into your investment portfolio. You can add this money to the investments you already have, or you can add to your portfolio by investing in new companies. If you need help deciding on companies to invest in, you can contact the financial provider and let them help you. Go in and talk to their investment professionals to figure out the best options for you and your portfolio.
5. Know When to Change:
Again, you may want to discuss this with an investment firm, but it’s important to know when to pull out of different markets. Sometimes you will need to reassess your investments, and may need to cash out some of the stocks and bonds that you have. If this is the case, it’s fine – reinvest that money into other companies. Make sure that you keep an eye on what you already have, so that you can ensure that your portfolio stays diverse. Pulling out of an investment at the right time can either make you money or at the very least help you save some if the stock is going down.
Keeping your portfolio diverse is an important part of investing wisely. Whether you keep track of all of your investments yourself or you work with an investment firm, it’s a good idea to keep an eye on what you invest in. With a diverse portfolio, you’ll weather the economic storms and come out ahead of the game. This is a great option for anyone who is investing.
Featured image courtesy of Flickr – Rocky Lubbers
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