First of all, What is a Portfolio?
A portfolio is a grouping of all your financial assets, including bonds, stocks, currencies, and cash equivalents. The most important rule when planning your portfolio is diversification.
Why You Should Diversify Your Portfolio
Diversification means to spread your assets in different types of investments, from stocks to bonds to mutual funds. Doing this helps mitigate the risk of losing money and preserves a balance in your portfolio that will help your investments grow over time.
How To Diversify Your Portfolio
For the best results, you should invest a portion of your portfolio in stocks(maybe 50-60%) while maintaining diverse choices among multiple sectors(never invest everything in a single sector). The rest of your assets should go into more short term safe investments like bonds or mutual funds.
Generally, stocks will be very volatile compared to other investments, so make sure to hold them for a long time to assure growth and mitigate loss.
How To Balance Your Portfolio
A diverse portfolio will likely mitigate your losses: if one investment in on the decline, another investment may be growing. Although a huge investment in a single stock may provide temporarily large benefits, a diversified investment within different sectors will ensure higher long term gains. However, for higher success, you must remember to balance your portfolio.
Don’t forget to check your portfolio regularly to avoid under-performing or over performing stocks: balance is key. Under-performing or over performing stocks usually skew the asset allocation percentages. Therefore, re-balancing your portfolio buy selling or adding to a stock will help maintain your risk tolerance at a comfortable level.
The easiest way to reach your long term investment goals is diversifying your portfolio. This will ensure your long term gains and maximize your potential portfolio growth by keeping investments balanced and minimizing loss.
Written and Researched by Steven Gao