5 Strategies To Diversify Your Investment Portfolio

Businessman using a phone in home office

Diversifying investments is a common financial approach. Whether you’re brand-new to investing or have been working to build your assets for decades, there’s always more to learn about how to diversify investments. Any investor has numerous options for short- or long-term planning and for balancing risk with reward. As you make plans for your future, how you invest and build wealth is a key piece of the puzzle. Advice on the best approach to investing can vary dramatically. There are many ways of getting to a good financial place, but a particularly reliable strategy is to diversify investments. “Don’t put all your eggs in one basket,” as they say.

Diversifying your investment portfolio is fundamentally a risk-management strategy for your money. It involves creating a range of saving and investing assets that make up your portfolio. Diversifying your investments can be a game of math, spreading any income and savings you have across different areas to set you up for financial gain—while protecting you against worst-case scenarios. Here are five ways to diversify investments.

1. Know the value of long-term low risk

For every story you hear about someone getting rich quickly on cryptocurrency or flipping a condo in an up-and-coming neighborhood for massive gains, there are 10 other stories that have the opposite outcome. Short-term investments on a single commodity or stock are high-risk. If you’re playing the long game to plan for your future, slow and steady wins the race. Spread your stock portfolio across multiple industries, pay your mortgage down if you own your primary residence, and contribute to your retirement funds. This minimizes the risk of being financially tied to real estate only if the housing market dips, or to the stock market only if a recession occurs.

2. Diversify investments beyond money

There are many different types of assets you can invest in. Diversifying investments involves having a range of where you invest and what you invest in. That could be currency, stocks, bonds, real estate, commodities, or a small business. But you should also invest in yourself through education, personal development, and life insurance. A good investment should provide a return in the future, but that doesn’t necessarily mean cash.

3. Put your retirement first

It can be easy to get distracted or discouraged by messaging and charts about how much money you’re supposed to have saved for retirement at a certain age. Everyone is on a different track, so focus on yourself—but planning for retirement should be at the top of your investment priority list. If a retirement plan like a 401(k), is offered by your employer, take advantage of it. You can also set up your own Roth IRA. Choose a retirement savings vehicle that’s right for you and contribute an amount you can afford. And make sure you put your contributions toward your fund on an ongoing, long-term basis.

4. Expect the unexpected, and plan for it

A million-and-one things can go wrong with investments. It’s impossible to know the future, and we’ve all seen how unforeseen events can completely disrupt the economy—from the stock market to real estate to taxes and interest rates. Diversifying investments will help keep your portfolio from taking too big of a hit when disruption and loss occur in one area because you will also be invested elsewhere. Your long-term investment plan should be structured on the reality that not all of your investments will pan out immediately, and a few may not pan out at all. So you’ll want to make up for any losses through other opportunities. Note that diversification does not assure a profit or protect against market loss. Also, purchase a life insurance policy that grows in cash value over time to protect your family during the working years, and have access to cash value to supplement your retirement income when you no longer need life insurance.

5. Always be willing to ask for help

When considering how to diversify investments, good financial help and guidance are available. There are countless experts who specialize in personal finance and can provide you with the tools you need to make wise decisions. Take advantage of opportunities to learn from the right people. If you’re planning for retirement and want to learn more about life insurance solutions, connect with a New York Life financial professional to talk through your goals and come up with a protection strategy that aligns with your unique situation.