When focussing on how to create an investment portfolio that is well-diversified, there are several other factors that you need to consider. Some of these include looking at your asset mix such as stocks, bonds, short-term investments and making sure that they get aligned to your investment time frame, financial needs and comfort with volatility.
You can try different levels of stock diversification
, and assess various sample asset mixes that include various amounts of stock, bonds and other investments to understand the different levels of risk and return potential.
To diversify stocks, you can target date-funds, invest in a mix of mutual funds or ETFs, customize with individual stocks and bonds and even opt for geographic market diversification
. Such a market diversification involves investing abroad and can help you to compensate for the volatility of a single economic region. In the long run, it can reduce your risk relative to less-diversified portfolios. Some experts claim that adding a little complexity in stock diversification helps in creating a well-rounded portfolio.
Moreover, along with creating strategies to diversify stocks and your portfolio, it is equally necessary to carry on periodic checks and rebalancing efforts. Diversification in investing involves not only settling on a target mix but also tracking it periodically and rebalancing it if necessary.
The goal should be to reset your asset mix to keep bringing it back to an appropriate risk level for you. That can mean reducing risk by increasing the portion of a portfolio in conservative options or even adding more risk to get back to your target mix.