Understand the risk.
Diversifying your portfolio means reducing the risk of losing money. Risk is how much you stand to lose, and it’s a function of the price of an asset and its volatility (the amount an asset fluctuates in price).
If you buy 100 shares worth $100 each, at $10 per share higher or lower than your purchase price they’re worth less to you financially. If they drop in value by 10%, they’ll be worth only $90 each; if they go up 10%, they’ll be worth $110 each—a 20% swing!
Look at your investment timeline.
Your investment time horizon is the amount of time you are willing to invest in your portfolio. You can think of it as the length of time until you plan on using your funds. Typically, people retire at different ages and with different lifestyles—a couple might retire at 65 while another couple might retire at 80 or 90!
- If you are young, it’s okay if your portfolio isn’t quite as stable because your goal is likely to grow your money over the next 15 to 20 years before spending it on things like college tuition, buying a home and paying off debt.
- If you are older than 60 and plan on retiring soon (or already have), then you should be more conservative with how much risk you take with investments because if things go wrong with investing when retirement is so close, there may not be enough time left for recovery.
How much risk am I willing to take on my investments?
Use a target-date fund to diversify.
If you’re looking for a quick, easy way to diversify your portfolio and don’t want to spend a lot of time researching investments, a target-date fund is an option. Target-date funds are a type of mutual fund that automatically rebalances as you get closer to your retirement date (or another date chosen by the fund). The idea is that the fund managers can make more informed decisions when they have more information about your goals and risk tolerance, so they can invest in assets that will help reach those goals with lower volatility.
The downside is that these funds come with higher management fees than other types of mutual funds—typically 0.8% per year (although some now offer no-fee options). This makes sense if you’re not much of an investment expert or planner; otherwise, it may be worth doing some research on your own before buying into one.
Invest in individual investments.
If you have the patience and interest to learn about investing, consider buying a few stocks or bonds yourself. This is also a great way to diversify your portfolio, since individual companies tend not to follow the same trends as other types of investments. It’s important that you know what you’re doing before investing this way—there are many resources available online for learning about how to get started in trading and investing with stocks, bonds, and more.
Diversifying your portfolio can help you build long-term wealth.
There’s a reason diversification is the foundation of investing. It can help you build long-term wealth by reducing risk, which means you’ll have more money to invest in the future.
When you think about investments, what comes to mind? Stocks, bonds and mutual funds are probably at the top of your list—and for good reason: They’ve historically provided returns over time that beat inflation. But if your portfolio only contains these types of assets, it may not be as safe as it could be.
Invest With Vested Finance
If you’re looking to diversify your portfolio, Vested Finance is the right tool for the job. As a US Securities and Exchange Commission (SEC) Registered Investment Adviser, Vested has been helping investors diversify their portfolios since 2016. Their online platform enables investors from India to invest in US stocks and exchange-traded funds (ETFs) easily.