Diversification is using various trading strategies and ways for an investor to have a great chance of survival. However, if diversification is not done effectively, it can have an opposite impact and compound instead of diminish risk. So, it is better to have diversification done in a correct and proper way.
Diversification is a battle cry for many financial planners, fund managers and individual investors alike. It appears almost impossible to sell a stock for any less than the price at which you purchased it, when the market is increasing. It may also seem silly to be in anything but equities, when the indexes are surging up. We should take into account the importance of a diversified portfolio in any market situation, because we are unsure of what will happen in the market at any moment.
Moreover, it is always important to regularly check your portfolio. You must always check your asset allocation, at least once a year, or anytime your financial circumstances change significantly. Checking will help you to identify your need to re-balance your asset mix or reconsider some of your specific investments.
Setting and maintaining your strategic asset allocation are among the most important rudiments to achieve long-term investment success. Below are some tips to help you in diversifying your portfolio.
- Extend your wealth
Never put all your investment in one stock or sector, although equities are good. You should build your unique virtual mutual fund by investing in some companies you know, trust and even use daily. Knowing a company or using its goods and services can be a good approach to investing.
- Think of index fund or bond fund
Investing in securities that traces different indexes make a good long-term diversified investment for your portfolio. You may consider adding index funds or fixed-income funds to the mix. You are dodging more your portfolio against market volatility and uncertainty, through adding some fixed solutions.
- Continue building
If you have $10,000 at hand to invest, use dollar-cost averaging approach. This is used to smooth out the peaks and valleys created by market volatility, you invest cash regularly in a specified portfolio or funds. Add to your investment on a regular basis.
- Know when to leave
Stay current with your investments and keep in touch with the over-all market situations. Not because you have your investments on autopilot doesn’t mean you should ignore the forces at work, even though buying, holding and dollar-cost averaging sounds good strategies. You should know what is happening to the companies you invest in.
- Keep your eyes on commissions
You should understand and know what you are getting for the fees you are paying, if you are not the trading type of investor. Some companies attach a monthly fee, while others charge transaction fees. Be watchful and knowledgeable about what you are paying and what you are getting for it. You should keep in mind that the cheapest choice is now always the best.
Investing is a worthwhile thing to do if we take a disciplined approach, using diversification, buy-and-hold and dollar-cost-averaging strategies when investing. It can be fun to do even in the worst of times.