A Guide to Diversifying Your Investment Portfolio
Maintaining a diverse investment portfolio is a relatively
simple way to continue to make investments while taking steps to
insure that you're not going to loose everything should certain
stocks or sectors of the stock market drop in value. Despite the
usefulness of diversification, many people still maintain a very
limited number of investments in very similar stocks... often
because the stocks are given as part of a stock-option plan from
their employer or because the individual simply doesn't know how
to take advantage of diversifying their portfolio.
Below you'll find several suggestions for how you can get the
most out of your investment experience by diversifying your
investment portfolio and making purchases in various sectors to
better guard against market fluctuations.
Defining Diversification
Before you begin to diversify your stock portfolio, it's
important to make sure that you know what diversity is. At its
most basic, diversification is simply the process of buying
different types of stocks in order to have a diverse selection
of stocks from different sectors of the market and representing
different industries. The more industries and market sectors you
have represented in your portfolio, the more diverse your
investments are and the more secure they can become.
Why You Should Diversify Your Portfolio There are many reasons
to diversify your portfolio, several of which all come down to
the same basic point. If you own stocks in a wide variety of
industries and market sectors, then you are much less likely to
be negatively affected by sudden changes in the value of stocks
in specific industries and sectors. While you'll still suffer
from the loss of value of those stocks, the stocks that you hold
in unaffected sectors or industries will continue to hold their
value or possibly even increase in value.
In most cases, the losses that occur in one portion of the
market at any given time are merely temporary; whatever caused
the dip in value will eventually recover, and the prices of
stocks will begin to rise again. Diversification helps to ease
the time spent waiting for your stocks to recover, as your other
stocks will continue to perform as they always do.
Easy Ways to Diversify
The easiest way to diversify your stock portfolio is to begin
making small investments in other stocks each time you make an
investment in your chosen stocks. This allows you to continue to
buy stock in the companies that you wish to support and that you
trust to give you a good return, but you are also able to begin
purchasing stocks in unrelated industries or sectors so as to
improve the diversification of your portfolio. Making
investments in bonds, indexes, and precious metals are also
wonderful ways to diversify your portfolio a little at a time.
Diversification with Online Investments
If you utilize an online investment broker, diversification is
just as easy as it would be at a physical brokerage. Utilize the
online broker's research functions to learn about
well-performing stocks in industries other than those that you
currently own shares in.
You might also find that your online broker of choice offers
easy diversification packages, allowing you to make a lump-sum
investment into the package and the broker will divide it evenly
among several of the better performing stocks in a variety of
industries and sectors as well as several indexes, precious
metals, and bond packages.
Combining diversification packages with automatic investment
options that are offered by most online brokers is a good way to
build a diverse portfolio quickly with minimal research on your
part.
You may freely reprint this article provided the following
author's biography (including the live URL link) remains intact: