Portfolio diversification is crucial in investment. It allows you to minimize your risk and give you long-term profits. Even though some of the assets are giving you negative returns, diversifying your portfolio helps you gain a net profit.
Anyway, here, you will know about how to diversify your portfolio with different types of assets.
How to diversify your portfolio?
For diversifying your investment portfolio, you need to consider two essential factors:
- Time: When you plan for a longer time-frame, you can take more risk for your investment. I have mentioned that diversifying your investment portfolio is a technique to manage your wealth to achieve your long-term goals. So it is crucial to consider the time-frame and risk tolerance for diversifying your portfolio.
- Correlation: It’s the other factor that shows the movement of your portfolio. If your entire portfolio moves in the same direction, then that’s not the right diversification. Spread your money across different investments in a way that doesn’t move in the same direction always.
When you invest in a mix of different assets, you need to follow some strategies that line up with your long term goals. Here are different types of investments to diversify your portfolio.
Types of assets for diversification
- Fixed Deposits and Bonds
- Mutual Funds
- Alternative Investments
Remember, investment is a long-term journey, and don’t confuse investing with trading. Both have different ways of approach and planning.
Fixed deposits and bonds
Fixed deposits are generally returning a steady interest rate over a principal amount. The risk associated with fixed deposits is significantly less as compared to other types of investment.
However, the return is meagre, and you should allocate a small percentage of your investment if you are young. But if you are going to retire very soon or already retired, invest a major portion of your investment in fixed incomes.
Mutual funds are managed by fund managers who pool money from the public and build their portfolio. It is a managed diversified portfolio that can give you higher returns over the long-term in simpler terms. Mutual funds are relatively riskier than fixed incomes and bonds.
It is one of the most popular investment options. You can invest in mutual funds in two ways, i.e., SIP and Lump-sum.
- SIP: SIP stands for Systematic Investment Plan, which means you need to invest a particular amount per month for a specified period. You can withdraw your fund at any time during your investment.
- Lump-Sum: On the other hand, lump-sum is a way of investing a large amount one-time. Here also you can withdraw your fund anytime.
Well, it’s easier and convenient to invest in mutual funds through SIP for job-holders or who are earning money every month. People who have retired or have a large number of funds can invest through lump-sum.
These funds are similar to mutual funds but are traded throughout the day on stock exchanges. You need to have a Demat account to invest in ETFs. The risk factors are more or less similar to mutual funds.
Stocks are riskier than both fixed incomes and mutual funds. You need to learn about fundamental analysis and technical analysis before investing in stocks. With higher risks, it also gives you high-returns.
There are many other alternative investments, such as gold, real estate, private companies, etc. In recent years, crypto assets have become a popular form of investment. You can invest in cryptocurrencies through bitcointrend.app. It’s a free and secure platform for investing in digital currencies.
I hope the information has helped you to understand how to create a diversified portfolio. However, portfolio diversification is not the answer to all your investment goals. You need to understand it’s a way to reach your long-term financial goals. But for short-term investments, you need a different approach. If you want any professional financial services, seek help from a financial advisor. Lastly, don’t forget to share your thoughts on this post.