One of the keys to building a strong and successful investment portfolio is to utilize the power of diversification. A diversified portfolio mitigates risk tremendously by not having a majority of your funds sunk into one asset class and/or industry. However, the term diversification is not fully self explanatory on how to apply diversification principles to your investment portfolio. Continue reading to learn how to diversify your investment portfolio.
Try Index Funds
Index funds are a great way to diversify your portfolio. Index funds include mutual funds or exchange-traded funds, which are portfolios that are created to mimic a financial market index, such as the S&P 500. This allows your fund to grow and maintain market level returns with broad market exposure and low operating expenses. Since an index fund is a combination of different investments in different industries, you can receive a large amount of diversity from one index fund.
Consider Target-Date Mutual Funds
Target-date funds are mutual funds or exchange-traded funds that rebalance and reallocate themselves over time with an exact target date set in mind for them to be cashed out. This is a great option if one of your investing goals is to save for retirement. While your fund is farther away from your target date, it invests in assets with a higher risk to help earn a greater reward. As you get closer to the target date, the fund invests in lower risk assets to maintain its balance with minimal growth and loss potential.
Rebalance On Time
Every six to twelve months, you should be rebalancing your investment portfolio. By rebalancing, you can keep your asset allocation proportions the way you planned them. If one asset class gets too large, it can minimize the diversification you have set up in your portfolio and throw off your diversification strategy, potentially harming your growth.
Planning and managing your investment planning yourself can be difficult without the guidance of financial professionals. Our team at Strategic Financial Group aims to help our clients face their investment planning with confidence. Schedule a consultation with us today to get started.