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 to find Eco-Friendly Stocks

eco-friendly stocksIn the great world of investing, it can be tumultuous at best when trying to find the right stocks that align with your passions while also providing adequate returns when armed with limited knowledge. However, the task of locating eco-friendly stocks are not as hard you might think.

Thanks to the world of robo-investing, apps like Stash and Grow allow you to invest specifically in environmentally friendly funds with minimal costs. However, if you’d like to dig a little deeper on why a company is eco-friendly, the list below provides some good qualifications on who’s a good prospect versus who isn’t.

  • Is the company being considered green certified – LEED Certified – or have they started the process of getting certified?
  • Is the company environmentally knowledgeable, and do they use that knowledge in planning their company’s physical site?
  • Are they efficient in their overall energy use?
  • Do they produce goods sustainably, while reducing waste creation by using materials available locally?
  • Do they consciously avoid damaging the environment, and are conscious of the possible pollutants expelled with the use of non-environmentally friendly machinery and vehicles, and serve to limit this?
  • Are they aware of and working towards employing and maintaining fair employment practices?

With that said should you stumble upon a company that answers yes to most of these questions, then you can most definitely be assured they’re good prospects for the environmentally conscious investors. Just to be clear though, this list is not exhaustive as you can go ahead and add other criteria as you see fit.

One thing that’s done fairly quickly and requires you to have no prior training or knowledge is to search for your prospective company’s news feeds. Chances are if they’re aboard the environmental campaign, they’ll want to make this public knowledge and through your research you’ll see exactly what they’ve implemented, and plan to implement in the future.

Just keep in mind the best eco-friendly stocks to consider are those typically from companies that manufacture electronic and hybrid vehicles, wind and solar technology as well as produce organic products.

In addition to your own research, it might be helpful to seek professional help when it comes to deciding which companies to invest in. The robo-advisor Betterment has introduced Socially Responsible Investing (SRI) Portfolios that allow you to invest in funds that match your interests. They also allow you to chat with financial advisors via their app for extra guidance.

We all know Financial Advisors are paid well to help clients select appropriate stocks that will produce acceptable returns. However, Betterment provides their streamlined investing process with this extra guidance at no extra cost.

With their help and analysis, you’re more likely to be investing in funds that will align with your specific financial goals. This is a great way to feel good about where your money is invested.