Healthy diversification could include investing in a wide variety of markets, industries, and geographic locations to name a few. Diversifying your investments is essential to long-term growth as it protects your hard-earned money by limiting your risk. A good rule of thumb is that no single investment should be more than 10% of your total portfolio.
Some examples of different markets include the stock, bond, crypto, or commodity (oil, gold, etc.) markets. Why is it important to spread your money across multiple markets? If one market crashes another market may rally. A common strategy for diversification within the stock market includes spreading your funds to buy shares of multiple companies, mutual funds, and exchange-traded funds (ETFs). If you’re investing in the crypto market, make sure to spread your money across multiple coins and currencies.
An example of diversifying across industries would be holding investments in different economic sectors at the same time, such as technology and agriculture. To invest in various geographic areas, invest in companies and markets across multiple countries.
The easiest way to diversify across different markets, industries and geographic locations is through financial instruments within the stock market, such as managed ETFs and mutual/index funds that invest in these varying markets for you. With one easy transaction, you can diversify your investments by utilizing funds that have managers who invest in commodities, cryptocurrencies, economic sectors, or foreign countries among many others. There are many ways to diversify your investments and you should pick at least one strategy to protect your hard-earned money in the long term.
Not sure where to start with diversification? Download the TradeMatrix app to see how other investors are succeeding in this area.