How to Diversify your Portfolio & Tips For Diversifying Your Portfolio


Individual investors, fund managers and financial planners strive to diversify their respective portfolio to tackle market volatility. During a booming market it impossible to think anything without stocks.

When the market is sliding down the same stocks may appear potentially dangerous. There are situations when investing in a particular sector of market is more risky or rewarding than others. It is virtually impossible to time market conditions and invest at the beginning of a bull run and sell at top. Diversification of portfolio provides a balance and helps in overcoming perils of market volatility.

While investing your hard earned money it is desirable to have some fundamental knowledge about market. Investing should be a regular practice. It is not recommended to take investment decisions in exuberance or as a knee-jerk reaction. Disciplined investing with a broad time horizon helps in diversifying portfolio and optimizing profit. Investment horizon of 3 to 5 years is ideal for averaging market conditions.

Investing in equities is most rewarding. The caveat is to spread investment among stocks from different sectors. It has observed that all sectors are not affected equally by market conditions and some sectors are more promising.

While investing in equities it is desirable to have some basic knowledge about the companies. Check the price movement history, compare performance with close competitors, note the factors affecting profit margin and analyze prospect of future growth before taking decision to invest in a stock.

Bond funds and index funds provide good opportunities to diversify and balance your portfolio. Return from these funds may be lower than equities but they provide you necessary comfort when equity market is at doldrums. Adding fixed income securities in your portfolio acts as hedge against market volatility.

Invest regularly and make it a habit. Lump-sum investment, especially in equities or equity oriented funds may spell doom for you. Systematic approaches like dollar-cost-averaging minimizes risk of investment.

It is necessary to when you should exit from an investment plan, sell or switch equities. There are many investors who prefer to buy and forget. While such approach may be fabled by some iconic investors, an average Joe should not hesitate to reap profit or minimize losses from considerable appreciation or depreciation of funds and stocks.


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