Much in the same way that real estate agents chant the words “location, location, location” there are a number of financial planners and investors that live by the words, “diversification, diversification, diversification”.
When trying to make the most of your investments it is hard to decide to sell a certain stock for less than you paid for it, and next to impossible not to focus all of your attention on equities when indexes are rising. However, the market fluctuates too much and predications are too hard to make for you to ignore the benefits of a diversified portfolio.
Diversification is in no way a new idea, as investing has always been about timely and well balanced decisions rather than hasty reactions. By the time you react, or overreact, to certain market movements most of the damage has already been done and it is too late to get out. The best way to defend yourself against market turns is by tabling a diversified portfolio that comes with a long term plan.
So how do you do that you ask? Read on to find out.
Spread out your Investments
Simple investment choices offered by certain places are often easy to invest in but, as your mother always said, you never want to put all of your eggs into one basket. You can create our own type of mutual fund by investing money into certain corporations that you trust. Do not stick purely to retail locations but try to invest in companies whose products you use or whose services you benefit from.
Continue to Build
It isn’t enough just to invest in certain stocks, certificates, or companies and then sit back and see what happens. You should always continue to plug money into your investments as regularly and as often as you can afford to. Set up regular investments through the use of the dollar cost averaging strategy and you will be able to ward off the major lows that may hit the market at any time.
Think about Bond or Index Funds
Bond funds and index funds can be valuable additions to your investment portfolio. By allocating some of your investment money into fixed-income funds you will be taking an additional step to fighting off the effects of market volatility and doing your part to keep your investments secure.
Learn when to Cut Losses
Holding onto investments and regularly plugging money into your portfolio are very beneficial strategies, but that doesn’t mean you can stop paying attention to market forces or that you can leave everything on autopilot. Keep in touch with market trends and pay attention to certain changes that may go on within companies you have invested in, and realize when it may be time to get out and move on should things take a turn for the worse for a lengthy period of time.
Be Weary of Trading Commissions
If you are the type that is intimidated by trading and wants to hire a firm to take care of it for you, then keep an eye on the commissions and fees that you will be paying. Be mindful and shop around but do remember that you often get what you pay for. The lowest-priced option isn’t always the most rewarding or effective choice.
We should all be doing our part to cast aside the assumption that investing is dull, dangerous, and intimidating.
Conclusion
Becoming an individual investor can actually be an exciting and fun process as well as turn out to be quite rewarding. As long as you do your homework, stay disciplined, and diversify your portfolio, you will find that you can make money through investments and come out on top in the long run.
Smile