5 Best Practices for Diversifying Your Portfolio

Posted by under In Focus . Updated: October 1, 2016

One of the most important concepts in investing is diversification. It’s a practice where you spread your money among different types of investments.

The main idea behind this strategy is to minimize risks and maximize profits. And with all that’s happening in the world today, I believe that diversifying your portfolio is more relevant than ever.

To help you understand what diversification is and how you can practice it in real life investing, let me share with you these five best practices.

1. Invest in different asset classes

The first way to diversify your investments is to put your money in various asset classes. The most common types of assets are stocks, bonds, cash, commodities and real estate.

However, it’s important to know that the asset class you choose will depend on your investment objectives and risk profile. If you want higher returns, then consider investing in stocks, real estate and commodities. On the other hand, if you prefer low-risk investments, then go for cash and bonds instead.

2. Invest in different industries or sectors

It’s also advisable to diversify across different industries or sectors when investing in the stock market.

For instance, you can buy stocks of companies from various industries such as banking, telecoms and manufacturing. This is a good strategy because it will help minimize your losses if one sector experiences an economic downturn.

3. Invest in different countries

If you want to diversify even further, then consider investing in different countries around the world.

For example, you can invest in stocks from China or India instead of just buying local shares here in the Philippines. This is a great way to minimize your exposure to risks because it will help spread out your investment portfolio across multiple geographies.

4. Invest in different asset classes within each country

It’s also advisable to diversify within each country where you invest. For instance, if you want to buy stocks from the United States, then consider investing in companies that operate in different industries such as energy, healthcare and technology. This will help minimize your losses if one sector experiences an economic downturn.

5. Invest in different types of investments within each country

Another way to diversify your investment portfolio is by investing in different types of investments within each country. For example, you can invest in both stocks and bonds from the same country. This will help minimize your losses if one asset class experiences an economic downturn.

Investing can be risky business, but it doesn’t have to be scary! By following these five simple steps, you can build a well-diversified portfolio that will keep you safe from market volatility while still generating strong returns over time.