How to Smartly Diversify Your Investment Portfolio

Diversification is possibly the most cried about word in the investment world. All investors know they need to diversify their portfolios. The key questions here is “how exactly”? Though you may hear investment diversification being talked about a lot, there is no surefire formula to diversify any individual portfolio. But there is one core principle that applies to all efforts: don’t lost money.

Obviously, you would want to diversify your portfolio in a manner that doesn’t result damaging your principal investments. Financial gurus like Tony Robbins recommend following the asymmetric reward principle. That is to say, for the least risk, you should be able to gain the most reward. For example, if you risk a dollar, the potential reward for that risk should be five dollars.

Here are some other useful tips that will help you diversify your investment portfolio in the most efficient manner possible:

Create Your Own Mutual Funds

Mutual funds are financial assets that are made up of many different types of stock. Financiers advise individual investors to get their portfolios to someone resemble a mutual fund. That is to say, don’t focus your stock holdings on one sector. Spread out the wealth. If you have penny stocks in tech, for example, don’t be happy just yet. Purchase stocks in other sectors as well.

Be careful when you go about putting your eggs in many different baskets. Don’t choose a sector that you have no idea about. Don’t spread the wealth too much, because that would make it more difficult to look after your investments.

Mix Up with Bonds and Index Funds

Diversification should be a long-term solution. The regular trading stock are not great for fixed-income returns. Therefore, it’s highly recommended to include bonds and index funds in your investment mix. These types of investments are much less vulnerable to market volatility than regular stocks.

Buy Real Estate

If you have enough wealth, don’t keep it all in cash. Diversification doesn’t refer to spreading the wealth within an asset class. When you buy bonds and real estate, you are diversifying between different asset classes as well. Real estate or property investments are an excellent solution for long-term diversification. The 2008 recession exposed how vulnerable this asset class can be for devaluation. But think about what has happened since then. Home prices are back up. Property is always valuable no matter where the market goes. As a result, it is one of the best classes of investments that should be included in your portfolio.

Diversify Globally

If you want to limit your risk stemming from a single market, diversify into foreign stock markets as well. When the U.S. market takes a hit, values in a foreign market may increase. For the best results, have assets in different countries as well as currencies. When Brexit happened, the pound took a dramatic fall. But the damage was contained to that one currency and didn’t affect the dollar. When you keep all your assets in a single currency, there’s an inherent risk associated with it like that, but not when you own investments in multiple currencies.

There is no best way to diversify. If you are unsure of what to do, seek help from a professional financial advisor. Keep educating yourself to make the best decisions.

How the Three Major Credit Bureaus Compare

Ever wonder where your credit report comes from? The answer is simple: the credit bureaus. Equifax, Experian and TransUnion represent the three largest consumer credit reporting agencies in the U.S.

All three bureaus collect information about your financial accounts and use them to generate your credit report. The information in your report is then used to calculate your credit score, the three-digit number lenders use to make credit decisions.

But, your credit score with one bureau may not be the same as the other two. That’s because the three credit bureaus don’t always use the same information to create your credit report.

 

How credit reporting works

Equifax, Experian and TransUnion all rely on your creditors to report information about your financial accounts. That includes things like:

  • Your payment history
  • Account balances
  • Credit limits
  • Inquiries for new credit
  • Types of credit you’re using
  • Age of your credit accounts

These factors are what’s used to tally up your credit score. The credit bureaus also collect non-financial information, including your name, Social Security number, birth date, address history and employment history.

 

Why your Equifax, Experian and TransUnion credit reports may differ

While all three credit bureaus can track the same information, they’re not responsible for actually reporting it–your creditors are. For example, if you have a major credit card like the Platinum Card® from American Express, that account would likely show up on all three reports. But, if you have a personal loan with your local bank, they may only report it to one of the bureaus. Some credit accounts are never reported at all. There’s no requirement that creditors do so; the process is completely voluntary.

The credit bureaus can also differ with regard to things like how your employment data is reported. Equifax and Experian may just list your employer’s name while TransUnion may list your employer’s name, your position and your dates of employment. Keep in mind, however, that your employment history has no impact whatsoever on your credit score.

Differences in what’s included in your credit report concerning your credit accounts can directly impact your credit score. Your Experian credit score could be higher than your TransUnion or Equifax scores, for instance, if you have a positive payment history with a creditor that’s reporting only to that bureau.

 

Checking your credit reports

If you’ve never checked your credit before, it’s a good idea to consider reviewing your report from all three credit bureaus. That way, you can see where they overlap and where they differ in terms of what’s being reported and how that may impact your credit score. You can get one free copy of each bureau’s credit report per year through AnnualCreditReport.com.

As you check your report, also be on the lookout for any errors. If you successfully dispute an error, the credit bureau that reports it is required to remove or correct this information. And finally, remember to scan your report for accounts you don’t recognize, which could be a sign of identity theft.