How to Build a Diversified Investment Portfolio for Wealth Growth?

Diversification Simplified: Let’s say you have an investment basket that is filled with one particular type of stock. If the market is unfavorable for the stock, then your whole basket takes a hit. Now imagine that you build a basket of investments with different types of stocks, assets and securities. Even if the market is unfavorable for one type of investment, the others can easily compensate for this, providing you with a comparatively more stable position.

Building a Diverse Investment Portfolio

When you invest in the market, you need to be prepared that you may not always be able to eliminate risk. However, a diverse investment portfolio is often regarded as an investment plan that can ensure that your whole investment portfolio will not take the hit.

Here are five easy strategies that can help you build a diverse investment portfolio.

Spread Your Wealth

Regardless of the amount you wish to start with when it comes to investment, putting all your money in one particular type of asset is usually not a good idea. Rather, you should try to spread your wealth across assets that are typically on the other end of the market. For instance, if you have heard that equities often come with high returns, this does not mean that you have to invest all your funds in equities alone.

Diversification in Action: Here’s an example of how you can diversify your diversification. (Just to be clear, this isn’t investment advice.) Imagine you allocate money like this: 40% in equities, 30% in debt, 20% in direct stocks, and the remaining 10% in fixed deposits.

Mix Assets and then Diversify

A simple rule of creating a diverse investment portfolio is mixing different types of assets. Remember that a promising portfolio does not have multiple stocks but rather multiple asset classes like stocks, bonds, Real Estate, alternative assets, etc. Remember that even while choosing different asset classes, you can diversify within each asset class.

Internal Diversification Simplified: Say that you’re investing in stocks for their ease and stable returns. Instead of investing in shares of one company or sector, you choose to invest in different companies from different industries. This will blend growth and value.

Explore Index Funds or Bond Funds

If you are a beginner investor, handpicking different types of assets can sound overwhelming. You might want to consider index or bond funds, as these are investment instruments that track different indices, making it easy for you to diversify your portfolio. Additionally, index funds are usually considered cost-effective.

Index/Bond Funds Simplified: These are funds that aim to mimic the performance of the underlying assets. This way, instead of handpicking individual stocks, you can invest in a bond fund or an index fund that gives you exposure to different types of assets.

Revisit, Rebalance, Repeat

Remember that the market is an ever-evolving space that demands you to revisit and rebalance your investment portfolio to make the most of market conditions. Whether it is adding to your investment amount or shifting your wealth among different asset classes, re-visiting and rebalancing or two keywords that you must keep in mind.

Pro Tip: Let’s say that your initial plan was to dedicate 60% of your investment to stocks. Over the years, the market boomed, and now stocks take 80% of your investment portfolio. This is where you may want to sell some of your stocks or re-distribute them in different sectors.

Know Your Exits Windows

In a market that is constantly changing and evolving, you need to understand your exit windows. This might sound daunting at first, but all you need to know is to stay updated with your investment and changes in the market conditions. Whether it is a long-term investment or a short-term investment, you must know when to back out of an investment.

Pro Tip: Say you have started a SIP for mutual funds, this does not mean that you stop keeping an eye on your investment. You always have the option to withdraw and reinvest in a more profitable mutual fund.

Over to You

Think of diversification as horse betting, where instead of betting on one horse, you have the freedom to bet on as many horses as you want. This investment approach might not promise you a complete elimination of risk, but it surely helps you build an investment portfolio that does not leave you stranded even if the market is dipping for a particular industry or a particular kind of asset.

To build a diverse investment portfolio, you must first evaluate all your options. Enter Jio Insurance Broking as a platform that brings you promising investment options and a seamless investment method.