Building a diverse investment portfolio is an essential part of investing. Building a successful portfolio is something even the big guys on Wall Street struggle with at times. When you are new to investing, it can become overwhelming with the number of stocks on the US stock exchange, which is why I decided to use this post to simplify the process for you. To become successful at investing, you have to become familiar with the risks, and rewards and to do both, you must pick solid investments. Below is the 3 must ways to diversify your investment portfolio.
PICKING SOLID STOCKS
Picking Solid Investment is key to building a diverse portfolio. One of the ways is to buy Exchange Traded Funds (ETFs) that mimics the S&P 500. As explained in the ultimate guide for beginners, the S&P 500 consists of 500 of the big companies in the United States. So, buying an ETF that mimics the S&P 500 is like owning a little bit of those 500 companies. It is one sure way to minimize risk while increasing diversification. The chances of all 500 companies failing are almost impossible.
PICKING STOCKS FROM DIFFERENT INDUSTRIES
Another way to have a diversified portfolio is to pick stocks from different industries. You don’t want all your stocks to perform at their worse at the same time. You have to pick stocks whose returns do not correlate to each other. So, when one stock falls, it can offset the losses if there are stocks that are doing well at the same time. This is one of the 3 must ways to diversify your portfolio.
INVEST ACROSS MARKET CAPITALIZATION
Last but not least, invest across market capitalization. What’s market capitalization? It is the way to identify a company by the size of the total value of its outstanding stocks. Stocks generally consist of /small-cap, mid-cap, and large-cap companies. Small-cap has less than 1 billion market cap, mid-cap has 1-10 billion, and large-cap has over 10 billion. By investing in the different markets caps, you mitigate risk and diversify your portfolio.
When people think about diversifying, they think about the challenges associated with it, but it does not have to be. It’s all about taking a step back and looking at things from a different perspective. You can look at the airline industry, technology, real estate, and defense stocks to increase diversification. Your choice! These 3 must ways to diversify your investment portfolio can be very rewarding if done well.
STOCKS CAN GO UP AND DOWN
The stock market at any given time can go up, down, or sideways. Your goal is to make sure if it goes down, your entire portfolio doesn’t sink. I hope this clarifies a few things for you, and if you missed out on my previous post about the guide to investing as a beginner, click here to read.
If you are ready to start your investing journey and do not know how to pick stocks, sign up for the 1:1 stock analysis coaching here.
I hope everyone is staying safe.
Next Time,
Charly
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