Does Your Portfolio Need A Make Over? Is It Time To Diversify ?

By definition diversify means to “reduce an investor's risk.” No one can argue that the past few years have been quite a roller coaster for infesters and that’s why diversification is so important. Does your portfolio need a make over? It is time to diversify?

You’ve heard the saying “don’t put all your eggs in one basket,” well investing is the same “don’t put all your money in one basket,” no matter how solid or impressive that basket may appear. The ticket to investing for your future, a rainy day, and retirement is to invest a little bit of money on a regular basis, in plenty of different places. That’s the secret and the power of diversification!

You listen to the stock analysis on television, you read it in the paper but do you really understand what your investments are doing? Most of us don’t and let’s face it after about 5 minutes of the droning our brain tends to check out.

Well there is no better time than right now to get the basics. Don’t worry I promise not to bore you to tears! I simply want to give you the tools so that you can give your portfolio that much needed make over.

Start by … you guessed it – diversifying! Consider all the investment choices available to you and there are many and then make your decisions. Notice I said decisions because you are going to diversify. Government bonds are safe investments with very low risk but also very low return. Fixed funs will offer a low but consistent profit and they are also relatively low risk. Mutual funds are designed for a long term investment of around 20 years. This is the only way you’ll see substantial gain on mutuals. And regular stocks can be high risk but they can also have big gains. When you diversify gets some of all of them!

Generally investing in individual stocks is not recommended because it’s extremely easy to loose it all. That said, if you are willing to take the risk then you may see some great gains, or not. Enron is perfect example of a stock gone bad but then Google is a perfect example of a stock that has seen big gains, and I do mean big gains! So if you feel like playing just a little set aside a small portion of your portfolio funds for playing in individual stocks. But remember never invest more than you are willing to loose in this market.

When you are investing be sure to invest in all the sectors of the economy. Don’t just buy dot com companies or oil and gas companies. Buy into the financial sector, the natural resource sector, the retail sector, the pharmaceutical sector, and on it goes. Put all 12 of your eggs in 12 different baskets or in the investment world 12 different sectors because they can’t all be bad at once. And if they are we’ve got bigger troubles on the horizon!

There are also three different asset classes that you should be aware of. Cash or Cash equivalent investments, stocks, and bonds. How much emphasis you put on any one class will depend on your personal situation and your personal comfort zone for risk. But you should hold investments in all three classes, how much in each is up to you.

And then there are segregated funds and mutual funds another way to diversify more. A segregated fund is similar to a mutual fund but it is an insurance product offered by insurance companies and generally providing a guaranteed return over a specified period of time.

A mutual fund generally consists of a group of stocks, money-market securities, or bonds from more than one source that are administered by a mutual fund manager. The object is to diversify within the mutual fund to ensure strong long term growth.

Don’t expect to be able to diversify instantly. It can take years to properly diversify your funds. If you’ve had investments for some time then now is the time for that portfolio make over! It’s time to diversify and make the most of your money. If you’re new start small and diversify as your portfolio grows.

Diversify and sleep at night knowing that your investments are safely distributed so that no one market disaster will sink you. That’s the power of diversification!

Aura Mirchandani is the Editor and Publisher of Article Click. For more FREE articles for your ezine and websites visit ArticleClick.com. Article Click is a free content article directory.