What is a diversified portfolio?
A diversified portfolio spreads investments across asset classes (stocks, bonds, real estate, cash) to reduce risk. If one sector underperforms, gains in others can offset losses.
Diversification improves risk-adjusted returns and minimizes portfolio volatility over time.
Stocks vs. Bonds vs. ETFs
- Stocks: High growth, high risk.
- Bonds: Lower returns, income stability.
- ETFs: Funds that bundle stocks or bonds, offering diversification and lower costs.
Each serves a different purpose in a portfolio. Balancing them aligns risk with your financial goals.
Creating target allocations
Set portfolio weights by asset class (e.g., 60% stocks, 30% bonds, 10% cash) based on:
- Time horizon
- Risk tolerance
- Income needs
Use your allocation as a benchmark for ongoing adjustments and strategy.
Managing volatility with diversification
Spreading investments across:
- Different sectors (tech, healthcare, finance)
- Geographies (domestic, international)
- Company sizes (large-cap, mid-cap, small-cap)
…helps reduce exposure to any single source of market risk.
Rebalancing over time
Rebalancing involves realigning your portfolio to match your target allocation. This may require selling overperforming assets and buying underperforming ones.
It prevents overexposure to risk and ensures your strategy stays intact, especially after market swings.