Protect Your Portfolio With Diversification

Just like the old warning against putting all of your eggs in one basket, if you put all your money in one company stock and it dropped like a rock, you’d lose everything. Diversification can help protect your portfolio from that scenario.

Diversification is the practice of spreading your money among different investments to reduce your risk of losses.

A portfolio should be diversified at two levels; both between asset categories, such as stocks, bonds and cash; and within those asset categories.

Ideally, if one investment is losing money, another will be making gains. To diversity between asset categories with stocks holdings, for example, you’d invest in a wide variety of industry sectors, such as energy, technology, financials, health care and utilities. Then you would diversify again, within those sectors. There are many ways to diversify within sectors: invest by company, such as Google or Apple in the tech sector; by geographical market, like domestic or international or by company size, large-cap, mid-cap or small-cap.

Many people choose to diversify their portfolios with mutual funds or Exchange Traded Funds. These funds hold shares in a variety of companies, making it easier for investors to own a small portion of many investments.

For more information on how to achieve a diversified portfolio, give us a call or stop by our website today!

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