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What Is a Diversified Portfolio?

| November 18, 2019
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If you’re a novice investor or new to investing, then you’ve probably asked yourself what is a diversified portfolio? When you are investing and worried about market volatility, establishing a diversified portfolio can help hedge against wild swings in the investment market.

By spreading your investments across multiple markets, you can lessen your losses if a particular area is hit hard and suffers major losses. Before you can establish a well-diversified portfolio, investors must first learn what is a diversified portfolio.

One of the first steps in learning what is a diversified portfolio is figuring out how much risk you’re willing to take and how to allocate your assets. 

For a more detailed look on the various ways on how to diversify portfolio, we’ll delve into the different avenues investors can utilize to craft a diversified financial portfolio.  

How to Diversify Your Portfolio

To help investors avoid putting all their investments in one basket, we’ve gathered the best ideas on how to diversify your Portfolio.

  • Investing in real estate: Real estate investing has become more commonplace over the years and it’s no longer just for business investors, homeowners, house flippers or real estate tycoons.

 While real estate isn’t always great for instant returns, purchasing a property with the purpose of renting it out can help pay off the mortgage and help recoup your original investment. Purchasing a house, investing money in a remodel and then reselling it at a higher value has also proven to be a profitable venture if conducted properly and in the right market.

With location one of the main factors in a property’s value, make sure to research the area. Not only does real estate offer a great way for portfolio diversification, but real estate investment can also offer liquidity and profits in the ideal market.

  • Try commodities: As inflation rises, so does the price of commodifies. With so many commodities to choose from including gold, agriculture and crude oil, commodity investing helps diversify your financial portfolio by spreading your investments across multiple industries. 
  • Utilize foreign markets: With the U.S. dollar subject to depreciation when inflation rises, investing in foreign currency markets in other countries is a good way to hedge against inflation. When inflation does strike, countries like Canada and Australia, which are some of the biggest exporters of petroleum and gas will see their prices rise and presumably so will the value of their currencies. 
  • Tackle the bond market: Investing in bonds can be conducted through municipal bonds, savings bonds, treasury bonds, and commercial bonds. Bonds are an aspect of income investing which involves generating money using your financial portfolio. Each type of bond carries their own risk and reward so make sure to consult with a financial advisor before making any risky investments. 
  • Don’t forget about yourself: One of the best avenues to generate extra income is with your own ability. Investing in yourself by developing additional skills and finding an extra income source through a part-time job can be viable ways to enhance your portfolio.

Diversifying your income with additional revenue streams makes you less susceptible to having hard financial times ruin your finances. Whether adding more income to pay off debt or saving for a large purchase, investing in yourself through income diversification is added protection to your finances.

Another important aspect of investing and diversification is confidence in the economy and your ability to capitalize on financial markets. With the nearly 40% of Americans saying they view the economy as not so good or poor, according to BankRate.com, many people don’t trust their financial knowledge to properly create a diversified portfolio.

To help novice investors properly invest their savings and avoid common financial mistakes, consulting with financial advisors can help identify the best investment strategies to ensure your assets are diversified and aligned with your financial lifestyle.

The return and principal value of bonds fluctuate with changes in market conditions. If bonds are not held to maturity, they may be worth more or less than their original value. -Additional risks are associated with international investing, such as currency fluctuations, political and economic stability, and differences in accounting standards. -All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful. A diversified portfolio does not assure a profit or protect against loss in a declining market. Matt Logan is experienced with crafting diversified financial portfolios for his clients. If you need help identifying the best investment strategies, reach out to Matt Logan today and see how he can guide your investments with comprehensive financial knowledge. Give a call today at 336-540-9700.

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