How and Why You Should Diversify Your Investment Portfolio

Posted Jan. 16, 2014, at 12:38 p.m.
Last modified Feb. 07, 2014, at 3:36 p.m.

Whether you’re new to investments or you’ve been investing for years, one of the most important things you can do is to diversify your portfolio. This allows you to ensure that you don’t lose everything. In addition, it allows you to find great new companies. There are many reasons why you should diversify, and several ways you can.

Look at Others

There are many in the investment community who diversify their portfolios. Take a look at Kashim Bukar Shettima Barbedos. This Nigerian businessman is the head of the Barbedos Group of Companies. This group has interests in a variety of industries, including oil and natural gas, fertilizers, and cars. This allows the company, and Kashim, to ensure that even if there is a bad economy, their portfolio is not going to crash in value. In addition to this, investing in a diverse portfolio has allowed Kashim and the Barbedos Group of Companies to make a lot of money over the years.

Decide on a Time Frame

One of the first things you need to do when deciding on diversifying your portfolio is setting a time frame. Some investors also call this a time horizon. This is how long you expect your investments to mature. Deciding on this is an important step, because it will determine what investments you make. If you’re looking at a more long-term investment, you’re going to be more comfortable making riskier investments, in general. The best way to decide on this is to determine your goals for your investments.

Diversify Between and Within Categories

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Many people feel that once they have diversified the types of investment categories they are going to use, they are good to go. However, it’s also important to diversify within those categories. Even though you have decided to invest in stocks, cash equivalents, and bonds, it’s a good idea to select different types of companies and assets within each of these. This ensures that your portfolio is as diverse as possible. The more different types of assets you have in your portfolio, the more likely you are to keep that portfolio strong, even when the economy has trouble.

Keep Adding to Your Portfolio

Even once you have created your portfolio, it doesn’t mean you’re done. You should keep adding to it, as you have additional money to invest. Investing on a regular basis can help you ensure that your investments are sound. In addition to this, you should take a look at your investments and rebalance them regularly. This will allow you to make sure that you get out if a stock is going down, or change the risk level of your investments if your goals change.

Creating your investment portfolio for the first time can be complicated. There is a lot to consider. In many cases it is a good idea to discuss your concerns and investment ideas with an investment banker. They will be able to help you decide on what will work best for your goals and help steer you toward the right investments.

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