5 Tips to Diversify Your Portfolio

Mar 19, 2018 | BEGINNER, INVESTING 101

Buying stock is the best way to earn large returns on your investments. But there are no guarantees. The best way to protect your investment and increase your odds of yielding good returns is by having a diversified portfolio.

Here are 5 tips to help protect your assets:

1. Don’t put all your eggs in one basket! – The number one rule is to buy stock in a variety of different companies and in different industries. This way if one company, or if an entire industry, suffers a setback, your other investments can compensate for any losses.

2. Spread the wealth even further – Diversify even further by investing in some low-risk stocks (like blue-chips) for slow, steady growth and some mid to high-risk stocks (like growth-stocks or penny-stocks) for the possibility of faster or more exponential growth.

3. Determine your needs and goals – Are you a young person with plenty of time to recoup losses, or an older couple hoping to supplement your retirement income? Do you need stocks which pay regular dividends or do you prefer stocks with higher capital appreciation? This is another area you can diversify. If you are able, invest in both dividend-paying and high-growth stocks. You can always reinvest your dividends if you don’t need them.

4. Reevaluate your investments over time – In today’s age of technology, the financial market is constantly changing. New industries pop up seemingly overnight. While it’s good to have some capital safely in “tried and true” markets, you don’t want to miss out on the next big thing either.

5. Non-stock options – while the stock market can provide high returns, even with sufficiently diverse stock, the market can be risky. Investing in bonds and other cash options ensures true diversity.