When it comes to smart investing, the last thing you want to do is put all of your eggs in one basket. This is because there will be times when certain holdings and positions will give you incredible returns, and other times when the same holdings can present a glum picture of the future. However, there’s an easy way to avoid this downfall: a diversified portfolio!
Why You Should Diversify Your Portfolio for Lower-Risk Investing
While it won’t completely eliminate the risk involved in investing, diversifying your portfolio can typically lower your risk when you allocate your investments across a variety of industries that will each have a different reaction and response to similar movements, events, and disasters.
For example: if your portfolio holds stocks in the food industry, your shares are very likely to drop shortly after unfavorable news for the industry. A good, though extreme example, would be what happened to customer-facing industries in March of 2020.
The best way to avoid this altogether is to find a balance by investing in other industries that would be less affected by an event that would harm customer-facing retail or food industries, like delivery or subscription services.
In short, a diversified portfolio can help you reach your long-term financial goals while giving you peace of mind through minimized risk.
How Do I Diversify My Portfolio?
You can never be sure what the market will do next, which makes diversifying your profile that much more important. Today, we’re going to go over some of the best ways you can diversify your portfolio to balance risk.
Stocks and ETFs
Adding stocks to your portfolio can help you build your savings, protect your money from the inevitable up and down the elevator of inflation and taxes, and maximize your overall income from investments.
ETFs are also a great way to diversify your investment portfolio because they offer trading flexibility, an overall lower cost, and typically incur fewer capital gains than Mutual funds, resulting in more tax breaks.
Mutual Funds
Mutual funds pool money together from a group of investors and invest the capital provided into different securities. These might include:
Stocks
Money Market Accounts
Bonds
...and more!
Given the fact that mutual funds offer diversified holdings in an instant, they’re a great investment for individuals who want to quickly and easily avoid putting all of their eggs in one basket and altogether avoid most of the complicated decision-making that trading involves.
Fixed Income Investment
There are a wide variety of fixed-income investments. These often include:
Municipal bonds
Corporate bonds
Government and agency bonds
· Certificates of deposit
Treasury bonds
Fixed income securities, or to be more specific, the high-credit-quality bonds, will help smooth out the rough ups and downs in the market and give you a certain level of security and control over how much money you will receive.
While diversifying with bonds won’t ensure a profit or completely protect against loss when the market is declining rapidly, it can help mitigate the risk.
Start your investing journey carefully
It will be no surprise at all that the key to short-term investment and savings is a diversified portfolio with stocks. This is because stocks, unlike bonds, won’t deliver the results you’ll need for the big purchases and savings in the next ten years. There are also ways to make short-term profits based on stocks, such as options, to generate profits. However, it should be noted that short-term profits usually also mean higher risks. Please be sure to have sufficient trading knowledge before trading.
Investing in mutual funds is another awesome, lower-risk investment opportunity for both short and long-term investing. Learn more about investing in mutual funds here.
To jump start your investing journey carefully, the first step is to get your finances in order. You won’t know how much or how little you can invest without doing this first.
Pick a strategy and stick with it. Don’t buy and sell differently than you have been just because other people are doing it.
Do your research and watch market trends for clues about what the future might hold for your investments. Join Firstrade’s free weekly education events here.
And of course: diversify your portfolio! There’s no better way to protect your investments and experience secure growth than diversifying your portfolio.
Trade Smarter with Firstrade
Are you ready to trade smarter? Firstrade can help. With no minimum deposit requirement, no fees for opening and closing accounts, no commission fees for stocks, options, ETFs, mutual funds, and bonds, and $0 contract fees for trading options, Firstrade is worth considering for short and long term trading and investment.
With At Firstrade, you can also consolidate your accounts, as well as manage your own account/s and kids’ account under one roof. We’ll even rebate the transfer fees from your broker when you transfer your brokerage account to Firstrade.
And with over 2300+ ETFs and 18,000+ mutual funds to choose from, diversifying your portfolio will be easier than ever.
Want to trade on the go? Download the Firstrade app today.