Investment: How to diversify your investment portfolio

Portfolio rebalancing refers to changing how much you have in different assets. It is obvious that some investments may trade better than others at a point in time. So changing the part of the money in each and rebalancing the same helps you to be in accordance with your original investment target. Based on the investor’s financial goals and objectives, investing in different asset classes is the ideal option. It means that you must hold securities from different regions.

What are the various investment options available to diversify my investment portfolio?

Here are a few investment options that will help you diversify your portfolio:

1. ETFs

2. MFs

3. Real estate

4. Commodities

5. Index funds – portfolio includes stocks and bonds

However, the situation changes for investors with larger portfolios. “Since the liquidity is not very high in India, investors with large corpus are forced to invest in more than one stock from each sector. This explains why mid- and small-cap oriented schemes have a large number of stocks in their portfolio,” says Shailendra Kumar. Funds– While the index funds track the overall market and rise and fall with it, for diversification, you can also explore some other high and low-risk investments from time to time. If you already have a portfolio and you are not sure if it would resist the market fluctuations, in the long run, try rebalancing your portfolio.

Hence, try incorporating different stocks into your portfolio rather than accumulating a pile of similar ones. As our travel and consumption of global brands increase, we can expect our future international expenses to become a bigger portion of our future liabilities. On the other hand by restricting our savings and investments domestically, we are creating an inherent risk of imbalance between our future assets and liabilities. The main risk here would be of Rupee depreciation, that can make our domestic savings/investments less valuable in a global economy. Investing in foreign assets also allows us to denominate our investments in foreign currency and diversify the currency risk.

By portfolio diversification, it means picking a range of assets to minimize all your risks and maximizing your potential returns. A good investment portfolio usually includes potential growing stocks, investments like index funds, bonds as well as bank accounts. However, a good investment will need – diversification, asset allocation and a habit to invest regularly; which are all possible through mutual funds. Building a diversified portfolio often means owning different schemes with various investment objectives or a different style of investing. The core philosophy behind diversification is “Do not put all your eggs in one basket”.

Step For Absolute Beginner To Start Investing Successfully

“The purpose of balanced portfolio construction is not to get the highest returns, but to reach the goal comfortably,” says Joseph. Portfolio diversification of an investment is just as essential as the investment itself. One can diversify their portfolio on their own, or also take the help of portfolio managers if need be. As Assetmonk pushes investors to diversify their portfolios, you can also take advice from our expert asset and property advisors.

How do you create a good diversified portfolio?

  1. It's not just stocks vs. bonds.
  2. Use index funds to boost your diversification.
  3. Don't forget about cash.
  4. Target-date funds can make it easier.
  5. Periodic rebalancing helps you stay on track.
  6. Think global with your investments.

Think of Buffet, who underperformed the market for many years yet he managed to make billions of dollars. Major asset classes include office, retail, industrial, multifamily, hospitality, senior housing, and storage like a garage or a godown. Real estate markets have periodic ups and downs that have the potential to affect all asset classes or may affect few classes more and others less. One way to overcome this cyclical risk is to invest across asset classes and hence, diversify. Diversification is undoubtedly one of the safest ways to build a long-term portfolio. Almost all stock market virtuosos believe that a well-diversified portfolio will outperform a concentrated one in a falling market.

Determine the Right Asset Allocation

Unsystematic risk can be caused by company or sector specific factors. Unsystematic risk can be diversified by investing in a portfolio of stocks. If you invest in a sufficiently large number of stocks, then even if one or two stocks give poor results, your exposure to them is limited and your overall portfolio can still generate potential returns for you. Mutual funds are the one of the best instruments for diversifying unsystematic risks. You must diversify your investment in different asset classes such as mutual funds, stocks, debt products, real estate, gold or silver. In addition, you must plan a diversification growth strategy if you cannot handle the risk of one asset class.

how to build a diversified portfolio

The return of these funds gets negatively impacted when interest rates move up, which is what we are witnessing right now. This is to inform that, many instances were reported by general public where fraudsters are cheating general public by misusing our brand name Motilal Oswal. The fraudsters are luring the general public to transfer them money by falsely committing attractive brokerage / investment schemes of share market and/or Mutual Funds and/or personal loan facilities. Though we have filed complaint with police for the safety of your money we request you to not fall prey to such fraudsters. You can check about our products and services by visiting our website You can also write to us at , to know more about products and services.

Debt vs Equity vs both

When you diversify your portfolio, you are lowering your exposure to the few assets you own. By holding multiple assets across different sectors and asset classes, an investor can limit the risk from a single asset, asset class or sector. A diversified portfolio will help you protect the downside in a volatile market. If one asset class like equity is not doing well during a downturn, debt funds and gold can limit the downside. If we take the analogy of cricket, you don’t want a team that only comprises top-order batsmen. You need a good bowler, wicket-keeper, fielder, batsman, and so on.

Each player has his/her own unique skill set which helps build a team. Similarly, a portfolio consists of different types of funds. The unsystematic risk is unique to assets or sectors or specific themes. This can be reduced to Is eToro a Brokerage Firm That We Can Really Rely On near zero by combining other assets with negative or low correlations. These are risks like rising interest rates, rising bond yields, industrial unrest in a particular industry or company, downsides in the commodity cycle etc.

It picks all types of ETFs in one basket and brings the risk level to the minimum as it has at least one ETF from the sector, market and commodity ETFs. A good ETF portfolio is well-diversified and cost-effective at the same time. Liquid funds, which invest in securities with maturity of up to 91 days, are low-risk products. At the other end of the spectrum, Credit Risk Funds are the riskiest, as they invest in low rated paper which generate higher yield.

Here are a few things to keep in mind when determining the asset allocation of your portfolio. But there is a way to make sure one bleeding asset class doesn’t mar your entire investment basket. Other factors – You can also diversify your portfolio by doing exhaustive research from python exponential your side on each and every applicant. You should clearly look into details like banking details, financial details and previous repayment track record of each and every customer. You can also mix and match different customers by mixing these customers on these variables too.

Through diversification, you can also get an opportunity to invest in other foreign markets apart from the domestic market. Amalgamating these different holding periods helps to ensure you eliminate the possibility of having all of your exits come at the same time and most probably the “wrong” time. Also, even in good times, exiting your holdings at the same time will present you-the reinvestment risk.

How to Build a Diversified ETF Portfolio?

Non-correlating assets are affected differently when compared to stocks. If one of the assets is affected adversely, i.e; if their value decreases, the value of the other will surge up. A diversified portfolio helps your overall investment to protect itself from any shocks or disruptions thereby providing you the best balance for your saving plan. Remember, diversification is not just limited to the type of investment or classes of securities; it also extends within each class of security. Thus, one must invest in different industries, interest plans and tenures. For instance, one must not put all their investments in a particular sector like pharmaceutical but must diversify by investing in several sectors like education, information technology, chemicals etc.

  • Transfer funds between your bank account and trading account with ease.
  • Below are the steps through which you can build a diversified ETF portfolio.
  • This is an exclusive story available for selected readers only.
  • However over the last 10 years, Nifty 100 Total Returns Index has given 14.8% annualized returns, which was substantially higher than both Gold and Fixed Income returns.
  • Before learning how index funds or ETFs help in creating a robust long-term portfolio that delivers, it is paramount to know what exactly index funds and ETFs are.

However, a proper diversification strategy will lower the risks of losses to a minimum. Therefore, try to prepare a diversification growth strategy to earn good returns without worrying about losses. Once you have the desired asset allocation in mind, you can pick sector ETFs, commodity ETFs or even real estate ETFs to build your asset allocation lexatrade review ETF portfolio. You should diversify your portfolio across market capitalisation , style , and asset management companies. Within the equity funds category, Large Cap Funds are relatively low in risk as compared to other categories like Mid Cap, Small Cap, with Sector Funds being the riskiest, as they invest only in one sector.

Step Up Your Investing Game With Portfolio Diversification Strategy

The primary reason for diversification is to get an opportunity to earn more and to reduce the risk of a portfolio. Hence, it is better to start early to have more time to reach your goals. However, diversification of investment does not assure you profit at all times. For a well-diversified ETF portfolio, you will need a minimum of 5 ETFs that will cover various asset classes. Now that your asset allocation is decided, you need to create your portfolio of ETFs by picking the suitable ETFs of each asset class you choose to invest in. Often called an all-in-one ETF portfolio, the complete ETF portfolio focuses on diversifying the ETF portfolio as much as it can.

how to build a diversified portfolio

Mutual funds may also help you diversify across different asset classes. By investing in hybrid funds you can get exposure to both equity and fixed income asset classes. Some hybrid funds have a higher exposure to equity, while some have higher exposure to fixed income and arbitrage strategies. You should select the appropriate fund based on your risk appetite. Please read all scheme related documents carefully before investing. The asset allocations discussed till now are structures needed at the time of investments.

How do you build a good diversified ETF portfolio?

The key to diversification is picking various asset classes along with multiple sectors. For a good diversified ETF portfolio, you need ETFs of multiple sectors, markets, and commodities as well as of different asset classes also.

We all dream of a retirement that is stress free and where we get to live life finally on our terms. Your small investment decisions today, could have a huge impact on your retirement corpus tomorrow. A good financial plan in place can help you achieve these goals at the required time. Investing is one of the best ways to build wealth over your lifetime and it requires less…

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