How to Diversify Your Assets: A Simple Guide in 4 Easy Steps

One of the ways to keep yourself sane when you’re investing is to know your risk level. If you aren’t sure what your risk level is, you might overdo it. Or, on the other hand, you might play things so safe that you are underwhelmed with your results.

Learning how to diversify your assets is an essential skill you should have to get the best results as an investor. If you aren’t sure what you’re doing—no worries. Continue reading this article and you’ll be well on your way to being a confident investor.

What Does It Mean to Diversify Your Assets?

Topics like asset protection and diversifying assets can be confusing and even frustrating. We aim to keep things as simple as possible so you don’t get overwhelmed with information.

Diversifying assets allows you to protect yourself, to some extent, from volatility. If you have your money all in one place and that goes south, you’re going to have a big problem. On the other hand, if you have your assets diversified and something goes bad with a few of them, you’re not going to be in total panic mode.

Here is how you can get started with asset diversification.

1. Fill Your Portfolio with a Wide Variety of Investments

Even if you’ve heard good things about a certain type of investment, don’t go all-in on it. You don’t have to be a financial genius to make this happen. There’s a multitude of simple options that will allow you to start building a diverse portfolio.

You can actually get instant diversification when you buy ETFs, index funds, or mutual funds. Each of these is like having a cart of different stocks. Before you put your money into an ETF, index fund or a mutual fund, understand that they trade differently.

Read up on how each of them works and make sure you are comfortable with it before you put your money there.

You can also get some diversification if you invest in index funds. While there are some limits, index funds are still a good option.

2. Diversify Inside of the Types of Investments You Own

When you’re buying stocks, you shouldn’t invest in only one industry or even a few industries. You should find some good companies in various industries and invest your money in those.

When you invest in different industries, you greatly lower your level of risk.

Think of other ways you can diversify inside of the different types of investments you own.

You might look into growth, market capitalization, mixed-income or other metrics so you can get some diversification happening.

3. Put Your Money in at Different Risk Levels

Depending on where you are in life, you might be able to handle more risk or you might need to be more conservative.

Let’s say that you are young and you still have a lot of time to recover if you lose money because of a decision that didn’t work out. You might want to invest in medium to high-risk level investments.

On the other hand, if you are coming to an age where you might need that money for retirement, you should look at very low risk to low-risk investment options.

The riskier the investment, the higher the rate of return they usually have. While the rate of return might be higher, remember that you’re also more likely to lose out. Don’t let the dollar signs blind you.

There are a lot of different types of stocks to look into and some of them are newer than others. If you don’t understand how a stock works or what its behavior is like, you should study up on it before you decide to put your money there.

4. Keep Your Portfolio Balanced on the Regular

If you think you’re going to be able to diversify your portfolio as a one-time action, that’s not the case. Keep a close eye on your portfolio and make sure your stocks are moving in the direction of your goals.

A good rule of thumb is to rebalance your portfolio at least a couple of times per year.

What Should Be in Your Portfolio?

With so many options, you might not be sure what should be in your portfolio. While the best course of action is to speak with a financial advisor and get one-on-one help, we are going to give you some ideas of what has worked for many people.

  • Bonds
  • Domestic Stocks
  • Short-term Investments
  • Sector Funds
  • International Stocks
  • Real Estate Funds
  • Commodity-Focused Funds
  • Asset Allocation Funds

While this is a big list, don’t let it feel daunting to you. You can build your perfect investment portfolio over time.

When you have a diverse portfolio with different kinds of investments like the ones listed above, it takes the anxiety out of investing.

We all want to bring in a profit with each of our investments, but that isn’t always how it goes. Instead of stressing yourself to the max, use these tips to create a diversified investment portfolio that will allow you to sleep at night.

How to Diversify Your Assets—Now You Know

Now that you know how to diversify your assets, why stop learning there? The more financially savvy you are, the easier it is to build wealth and stability. We have many articles that can help you as you’re growing your net worth.

Browse our site, find your favorite section, drop a bookmark and come back soon for more great reads.

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