As the saying goes, “don’t put all your eggs in one basket.” This is especially true when it comes to your investing strategy. Diversifying your investments across various assets is essential to maintaining a well-balanced portfolio. Keep reading to learn how to build a diverse investment portfolio.
How to Build a Diversified Portfolio
Investing is crucial to building wealth and securing financial stability for the future. However, it can be risky if not done strategically. To reduce risk and increase potential returns, you need to diversify your investments. Here are six common steps of portfolio diversification.
1. Set Your Investment Goals
Are you investing for retirement? Saving for a down payment on a house? Trying to grow your wealth? No matter your end goal, it’s important to clearly define your objectives, both long-term and short-term. This will help you follow a clear path and determine the types of investments you should consider and the level of risk you’re willing to take on.
2. Determine Your Risk Tolerance
Your risk tolerance is the degree to which you feel comfortable accepting the risks of investing. A financial advisor can help you determine your risk tolerance and recommend investments that align with your goals and comfort level.
3. Invest in Various Asset Classes
Diversification means investing in various asset classes, such as stocks, bonds, real estate, and commodities. There are different levels of risk and return for each, so by investing in a variety of them, you can reduce your overall risk while potentially increasing your returns.
4. Invest in Different Industries
Investing in companies across different industries can decrease your exposure to industry-specific risks. For example, if you invest only in technology companies and the tech industry experiences a downturn, your portfolio may suffer. However, you can offset the losses by investing in healthcare, consumer goods, and financial services.
5. Consider International Investments
Investing in companies and markets outside the U.S. can reduce your exposure to domestic economic and political risks. However, investing in international markets also comes with its own set of risks, such as currency fluctuations and geopolitical instability. Working with a financial advisor who understands the risks and can recommend appropriate international investments is essential.
6. Regularly Review Your Portfolio
As some investments perform better than others, your portfolio may become over-weighed in certain asset classes or industries, so you’ll want to rebalance it occasionally to maintain diversification. This involves selling some investments and buying others to return your portfolio to its original allocation.
Investment Management Services in Worthington, OH
Choosing an investment advisor who understands your financial situation and shares your banking philosophies and objectives is crucial. Royal Oak Financial Group has Certified Financial Planners and investment management specialists that can help you build a successful diversification strategy and achieve financial prosperity. Contact our team today to get started!
