A Guide to Diversifying Your Investment Portfolio by John Mussi

Maintaining a diverse investment portfolio is a relatively simple way to continue to make investments while taking steps to insure that you’re not going to loose everything should certain stocks or sectors of the stock market drop in value. Despite the usefulness of diversification, many people still maintain a very limited number of investments in very similar stocks… often because the stocks are given as part of a stock-option plan from their employer or because the individual simply doesn’t know how to take advantage of diversifying their portfolio.

Below you’ll find several suggestions for how you can get the most out of your investment experience by diversifying your investment portfolio and making purchases in various sectors to better guard against market fluctuations.

Defining Diversification

Before you begin to diversify your stock portfolio, it’s important to make sure that you know what diversity is. At its most basic, diversification is simply the process of buying different types of stocks in order to have a diverse selection of stocks from different sectors of the market and representing different industries. The more industries and market sectors you have represented in your portfolio, the more diverse your investments are and the more secure they can become.

Why You Should Diversify Your Portfolio

There are many reasons to diversify your portfolio, several of which all come down to the same basic point. If you own stocks in a wide variety of industries and market sectors, then you are much less likely to be negatively affected by sudden changes in the value of stocks in specific industries and sectors. While you’ll still suffer from the loss of value of those stocks, the stocks that you hold in unaffected sectors or industries will continue to hold their value or possibly even increase in value.

In most cases, the losses that occur in one portion of the market at any given time are merely temporary; whatever caused the dip in value will eventually recover, and the prices of stocks will begin to rise again. Diversification helps to ease the time spent waiting for your stocks to recover, as your other stocks will continue to perform as they always do.

Easy Ways to Diversify

The easiest way to diversify your stock portfolio is to begin making small investments in other stocks each time you make an investment in your chosen stocks. This allows you to continue to buy stock in the companies that you wish to support and that you trust to give you a good return, but you are also able to begin purchasing stocks in unrelated industries or sectors so as to improve the diversification of your portfolio. Making investments in bonds, indexes, and precious metals are also wonderful ways to diversify your portfolio a little at a time.

Diversification with Online Investments

If you utilize an online investment broker, diversification is just as easy as it would be at a physical brokerage. Utilize the online broker’s research functions to learn about well-performing stocks in industries other than those that you currently own shares in.

You might also find that your online broker of choice offers easy diversification packages, allowing you to make a lump-sum investment into the package and the broker will divide it evenly among several of the better performing stocks in a variety of industries and sectors as well as several indexes, precious metals, and bond packages.

Combining diversification packages with automatic investment options that are offered by most online brokers is a good way to build a diverse portfolio quickly with minimal research on your part.

About The Author

John Mussi is the founder of Direct Online Loans who help homeowners find the best available loans via the www.directonlineloans.co.uk website.

Reprinted from ArticleCity.com