I recently shared a video on what types of accounts are in my investment portfolio. I have many different types of accounts and I feel like it has really given me the opportunity to diversify the types of funds that I have. I currently have a Traditional IRA, Roth IRA, 401K, ETFS, Pension, TDA and individual stocks.
But that is not why my portfolio is considered diverse. My portfolio is diverse because I have done my best to make sure that I have a healthy mix of stocks and bonds, small – large cap funds, domestic and foreign accounts, and a mix of sectors. I have purchased funds in the real estate sector, healthcare, and technology to name a few. The last thing I want is to have all of money to be stuck in a bubble that is about to burst. Right now, if one field goes down, I should still have protection with another field that is stable or improving.
Here are five simple ways you can create a diversified investment portfolio.
- Purchase mutual funds. There are in its very nature diverse. Picking individual stocks may be intimidating, and it’s actually quite difficult for a small investor to purchase bonds, so this could your best bet as a new investor. You can buy funds that are 100% bonds, 100% stocks or a mix of the two.
- Vary the sectors that you invest in. Remember the dot.com bust or the housing bubble that bursted? There are so many industries to invest in. You can buy into defense, healthcare, IT, retail… you name it! Don’t get stuck in just one. I remember companies that went under in the last 10 years or so, and how their employees lost everything overnight because their entire 401K was based on that company’s stock.
- Dollar cost averaging is your friend! Meaning, invest the same amount of money on a routine basis into the same fund or stock instead of in lump sums whenever you feel “moved.” This will help you from just buying a stock or fund on its good days – when prices have skyrocketed. If you consistently invest in the same thing, you’ll purchase on its high days and low days, and the cost you pay for it will even out, but you will get more shares on its low days.
- Have a mix of companies that are small – large, new to old in your portfolio. Older, larger companies tend to have lower risk, which will protect your assets. But smaller, newer companies may have the higher reward which will boost your bottom line.
- Invest in domestic AND foreign funds. There are so many other countries in this world with economies that are about to take off. Again, foreign investments may be a little riskier, but that could mean the pay off will be greater.