You have probably heard the saying that you shouldn’t keep all of your eggs in one basket! From the best home insurance for high net worth individuals to stocks and shares; your financial plan should cover everything. In this blog post, we are going to take a look at four of the different ways that you can make sure your investment portfolio is diversified. Continue reading to discover everything you need to know.

What is diversification?

Before we delve into the different ways you can keep your investment portfolio diversified, we need to understand what diversification is. For a lot of individual investors, fund managers, and financial planners, it is a battle cry. It is a management strategy that blends various investments into the one portfolio. The idea behind this is that a number of different investments are going to yield a higher return. It indicates that investors are likely going to face lower risk levels if they invest in different vehicles.

So, how can you make sure that you keep your investment portfolio diversified? Read on to discover more about four strategies and pieces of advice you should follow.

• Spread the wealth – The first step you need to take is to spread the wealth. Equities can be excellent, but do not put all of your cash into one sector or one stock. Think about making your own virtual mutual fund through making in an investment in a number of businesses that you know, trust and even use in your daily life. Stocks are not the only area to consider, though. You can also invest in real estate investment trusts, exchange-traded funds, and commodities as well. Do not merely stick to your own home base, either. Think beyond this. Go global. By doing this, your risk is going to be spread around, resulting in much bigger rewards. At the same time, you need to make sure that your portfolio is manageable and that you do not go too far. This is one of the traps that a lot of people fall into. Investing in 100 different vehicles does not make any sense if you do not have the resources or time to keep up with it. Instead, try to limit yourself to around 20 or 30 different types of investments.
• Keep building your portfolio – Aside from spreading the wealth, it is important to make sure that you are looking to add investments to your portfolio on a continual basis. Of course, this does not mean that you should simply add investments for the sake of it. Use dollar-cost averaging if you have £10,000 to invest. This approach is utilised so that the valleys and peaks that market volatility causes are smoothed out. The idea behind this approach is that your investment risk is going to be cut down by investing the same quantity of money over a specified period of time. With this approach to investing, you are going to invest cash on a frequent basis into a portfolio of securities that have already been specified. This strategy will mean that you are going to be purchasing more shares when they have low prices, and fewer shares will be purchased when the prices are high.
• Consider bond or index funds – Another tip when it comes to investments is to consider bond or index funds. You may want to think about adding fixed-income funds or index funds to your investment mix. By investing in securities that track the number of different indexes, you will have an excellent diversification of investment over the long run for your portfolio. If you add in some fixed-income solutions, you are going to hedge your portfolio further against market uncertainty and volatility. These funds attempt to match the performance of broad indexes, so as opposed to investing in a certain sector, they aim to reflect the value of the bond’s market. Low fees are often attributed to these funds, which is another benefit that is associated with them. After all, this means that you are going to end up with more money in your pocket. The operating costs and management expenses are going to be minimal because of what it takes for these funds to run.
• Diversify by sector – Last but not least, we are going to take a look at the importance of diversifying by sector. To do this, let’s take a look at an example. Let’s pretend that back in 2006 you held shares in a bank in the UK. You may have found that this investment was incredibly rewarding, and so you decided that you should purchase more shares in other banks. It all seemed great! That was until the credit crunch hit the following year, of course, which resulted in a banking crisis. You would have seen the value of all of your shares plummet. If you had diversified and bought shares in a different sector, you may not have taken such a hit. So, once the assets that you want in your portfolio have been decided on, you can then further diversify by investing in a number of other sectors, preferably those that are not highly linked to one and other. For example, the precious metals sector and the healthcare sector are not closely related. Therefore, if something were to happen in the healthcare sector that caused your shares to plummet, it is unlikely to have an impact on the shares that you have in the precious metal sector.

As you can see, there are a number of different steps that you can take in order to diversify your portfolio correctly. If you follow all of the advice that has been provided above, you can make sure that your portfolio is diversified, and this will give you a great chance of achieving investment success. After all, if you put all of your eggs in one basket, you’re taking a massive risk. Make sure that you only diversify to a level that you can manage, though!