Diversifying your investment portfolio is the best way to shield your financial assets from the fluctuations of the market. To accomplish this so-called diversification, you have to adopt a structural approach that is efficient as well as practical. Let us look in to some factors to be kept in mind while you try to restructure your investment portfolio.
Comprehensive and Diversified investments
When it comes to your valuable investments, it is not advisable to put all your eggs in the same basket. Diversification is the key to ensuring minimal damage to your portfolio in the event of a financial downturn or recession.
Stocks and Mutual funds for Diversified investments
If you are planning to invest a chunk of your capital in stocks, try to buy stocks options of different companies. Try choosing the companies in such a way that your investments are spread across a wide spectrum of various industrial sectors. This way you can minimize the damage when one or two of those industrial sectors go down.
For those who do not have sufficient time and energy to spend on finding diverse stock options, mutual funds can be a better alternative. Good mutual funds have diversification of stocks built in to the scheme. The one-time purchase of mutual funds can ensure that your money is automatically invested in varied stock options. The consolidated evaluation approach of mutual funds can eliminate the need for keeping track of individual stock options.
Choosing the right mutual fund
Before choosing mutual funds to invest in, find out their total returns over a period of five years and compare that value with the market average. The returns from mutual funds vary quite a bit based on the changes in the market. However, a constant factor affecting the profit from any mutual fund is the amount charged as the annual management fees. Choose one with affordable fees to maximize your returns.
You can go one step further with your portfolio diversification by investing in mutual funds belonging to different categories. Some funds buy only stocks whereas some invest in bonds as well. Different mutual funds choose companies with different levels of growth. Some invest in fast-paced companies while others go for companies that show a steady growth. A mix of such mutual funds would be ideal for someone looking for diverse options.
The broader your personal investment portfolio, the less affected it will be by the ups and downs of the financial market. So diversify your financial portfolio to reap maximum benefits!!