How To Diversify Your Investment Portfolio

Time is money and investment is the new savings. Everyone needs to invest in having a secure financial future. The earlier you start investing, the higher the returns you get when you retire. Anyone can get into investing at any age, and it begins with creating an investment portfolio.

An Investment Portfolio

An investment portfolio is a set of assets owned by an individual or an institution. An investor’s portfolio can include real estate and so-called “hard” assets, such as gold bars. But most investment portfolios, particularly assembling portfolios to pay for retirement, are made up mainly of securities, such as stocks, bonds, mutual funds, money market funds, and exchange-traded funds.

The best retirement portfolios diversify the mix of investments — which can range from the caution of U.S. Treasury bonds to the risky zip of small-company stocks — to dampen market losses and maximize potential gains.

Having A Portfolio With Multiple Investment Records

ETFs & Mutual Funds

An effortless way to have multiple investments is by purchasing ETFs, index funds, or mutual funds. ETFs and mutual funds.

A properly diversified investment portfolio should include:

  • Cash
  • Stocks
  • Bonds
  • Exchange-traded funds
  • Mutual funds

Diversify Individual types of Investments.

Pick investments with different rates of returns.

It is challenging buying individual stocks since you’ll need to invest a substantial amount to make the cost of the trading worthwhile.

So when investing in stocks, it is essential that you don’t concentrate on a single stock or a few stocks but a variety of stocks in different sectors. It’s also necessary to have stocks with multiple-incomes, growth, market capitalisation. When investing in bonds, consider bonds with various credits, durations, and maturity.

Investments with Changing Risks

Choose investments with a wide range of returns.

When diversifying your portfolio, pick investments whose rate of return is different to ensure substantial gains for certain investments offset losses in other assets.

Foreign stocks

Stocks from foreign countries tend to perform a little differently and typically balance out a domestic-heavy investment portfolio. You can also invest in small-cap or mid-cap stocks, which are younger, and more volatile in returns.

Rebalance your portfolio periodically.

Portfolio diversification isn’t a one-time task. Check your portfolio often and make changes when the risk isn’t consistent with your financial goals or strategy.

What should be in your Portfolio?

A diversified portfolio should include the following:

Domestic stocks

Buying stocks allows you to own a percentage of a company which has benefits like dividend payouts & capital gains when the stock increases in its price over time. Domestic stocks should always be a significant part of your investment portfolio as long as they offer long term growth.


Bonds offer a common interest in income. They are less volatile than stocks which make them an excellent option during unpredictable changes in market trends.

Stocks should always be a significant portion of a portfolio for investor safety than the growth of returns. Bonds offer lower returns than stocks in the long term, except in the cases of specific international bonds.

Short-term investments

Including short-term investments and mutual funds offer stability as well as easy access to more investment opportunities.

Investments like certificates of deposits are insured by a federal government of a country, making them a safer option to private companies.

International stocks

A right mix of international stocks is essential to protect your portfolio against the local stock market “shocks.” Stocks issued by U.S. companies perform differently from those given by non-US companies, as they have different opportunities in different countries.

Sector Funds

Sector funds are investment funds which focus on specific segments of the economy. Including sector funds, as part of your portfolio, offers unique investment opportunities in different economic cycles of the market.

Real Estate

Investment portfolios with real estate investment funds offer protection against market inflation and offer unique market opportunities.

Commodity-Focused Investments

Equity funds on commodities like gas, minerals, oil, etc. can also protect your portfolio against inflation. These funds also shield investors from the risks associated with entities since commodity investing is a recommended strategy for expert investors.

Diversifying Reduces Uncertainty.

There is some uncertainty in every financial market. If an investor puts all of their money in stocks, they risk losing everything when the stock market crashes. The same principle applies to real estate, commodity markets, currency, etc. However, all markets never crash at once and in the same way.

By diversifying, which is investing your money in various across different sectors, the chance of losing a large amount of cash or an entire investment is slim.

An Example Of Diversification

In early 2008, A simple mix of investments—40% U.S. stocks, 30% U.S. bonds, 20% foreign stocks (from developed countries), and 10% commodity stocks in oil (from developing countries)—would result in a loss of 27% during the 2008 financial crash.

Having more international bonds and hedge funds in the portfolio would have reduced the loss to under 16%.

To understand more about diversification and how your company can benefit from it, you can take the assistance of the experts at JAXA Chartered Accountants. Investment diversification reduces risks and makes your returns more stable over the long-term. But it doesn’t have to be very complicated to implement.

Jaxa Auditors turns diversification into an easy task with its in-house team of investment and financial consultants. Contact Us for more information on the best investment options to diversify your portfolio in the UAE.

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