How to Build a Diversified Investment Portfolio


Diversify when creating a portfolio; diversification can help lower risk by protecting against major losses if one asset class or security experiences decline in value.

Your investment portfolio should consist of stocks, bonds and cash that do not share a high degree of historical correlation with one another. Furthermore, within each investment type you should diversify according to market capitalization, sectors or geography.

Index Funds

Index funds offer an easy and cost-effective way to create a diverse investment portfolio at an accessible price point. ETFs and mutual funds that track an index provide an effortless way to select asset classes such as stocks, bonds and cash investments.

These funds may follow specific industries such as tech or finance, or may provide diversification by tracking an entire sector like oil or real estate. By diversifying across a wide array of investments in your portfolio, if one sector or market experiences any major declines it won’t take such a drastic hit to your overall performance.

By diversifying, your portfolio can continue to expand even when individual investments decline in value and decreases any single loss’s impact on overall returns.

Diversifying Individual Asset Classes

Diversification can help limit risk and increase returns when creating an investment portfolio, by eliminating overreliance on any one type of investment. When stocks or other investments take a hit, gains from other holdings may offset losses and protect returns overall.

Diversifying means diversifying across several asset classes, such as stocks, bonds and cash equivalents. Furthermore, you should diversify within each asset class by investing in companies of varying sizes, sectors and locations as shares – for bonds this means selecting those with varied maturities, credit qualities and durations.

Real estate and commodities investments can also form an essential part of a diversified investment portfolio. They tend to have low correlations with stock and bond markets and may reduce long-term risk; however, these types of investments tend to be less liquid than others and generally costlier to own.

Diversifying Within Each Asset Class

Diversifying across asset classes is one way of mitigating risk by lessening the impact of one investment on another. For instance, holding shares from companies within a particular industry sector like oil can have severe repercussions for your entire portfolio if oil prices decline; but by diversifying into industries like package delivery or videoconferencing platforms you may experience less severe impacts from sudden shifts.

Diversifying bonds can also help minimize the effects of interest rates on your investments, provided you select various maturities and issuers for them. A diverse fixed income portfolio might consist of Treasury bills (T-bills), bankers’ acceptances, certificates of deposit or corporate bonds.

Building and managing an investment portfolio that fits with your time horizon, risk tolerance and investment goals requires time and expertise. Work with a Thrivent financial advisor to devise a personalized investment strategy.

Diversifying Globally

As global economies thrive, investing globally can make an enormous difference. Diversifying your portfolio to take advantage of growth opportunities while mitigating overall risk and the possibility that one market might decline while another expands is crucial for long-term financial security.

Diversifying within each asset class is also crucial, such as stocks. Diversifying these investments by including different investment sizes, industry sectors and companies with various operational strategies helps reduce overall portfolio risk by lessening any one area from sudden market changes that cause losses in a single area.

Maintaining a well-diversified portfolio requires ongoing efforts. That’s because holdings in your portfolio may change size as the market fluctuates and new investments take larger shares in your overall investments. To stay on top of things, it is a good idea to review your portfolio at least quarterly and rebalance when necessary.

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