Diversification in a portfolio is an integral part of a successful growth strategy. Rather than putting all your cash into just one asset class, diversification means spreading out your investments over a variety of assets.
It’s important to do this for many reasons, the main one being to reduce your overall risk of losses. Balancing your portfolio across a range of different stocks or other investments can limit the effects of market volatility and help you achieve healthy, balanced growth.
The key is to not own too much of one particular stock as this can reduce your portfolio value should the relevant market suffer a significant crash.
But what else can be done to help you achieve a diverse and balanced portfolio?
Continue to Invest
As an entrepreneur, you might start out investing a small amount. But the idea is to keep building up your portfolio, bit by bit. Choose an amount to invest and do so at regular intervals, according to your available capital. Planning long-term means there is less chance of volatility and it’s easier to get into a routine of investing rather than choosing ad hoc times.
The key here is to not worry too much about the right times to invest as, historically, investments tend to rise over a period of years.
Index trading
Index trading allows you to invest in a variety of companies, often across different sectors. You can choose to track indices which feature the top businesses within a particular region, such as the S&P 500. Alternatively, you can invest in indices which feature companies from one specific market, such as the technology sector.
The advantage here is that your investments track the performance of various businesses that make up the index, therefore hedging against significant volatility. It’s important to note, however, that similar companies can be affected by the same influences so certain global events, such as conflicts or food shortages, can have an impact on the whole index.
Spread your investments
Try not to limit yourself to the same types of companies or sectors when planning your investments. Choose stocks, bonds, ETFs and property to create a diverse portfolio. But don’t overbuy as you could struggle to manage your investments.
Keep updated on market conditions
Once you’ve made your investments, ensure you keep on top of company news, geopolitical events and any other factors that could influence the market. While you don’t necessarily need to know all the ins and outs of every single company, it makes sense to have an overview of how each of your investments is performing so you can make informed trading decisions.
Go global
Finally, it makes sense to not restrict yourself to one region but rather to select a variety of global stocks to reduce the chances of making a loss.
