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Best Ways To Start Diversifying Your Portfolio

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If you’re looking to see your money grow, few options will return as much as the stock market. Thousands of companies are listed on the US stock exchanges. Investing in one or two companies is not a good idea. Rather, you’ll want to diversify your portfolio to avoid a total loss.

Diversify Through Sectors.

The stock market is made up of several sectors. There are funds that focus on these sectors like energy, consumer staples, consumer discretionary and finance. These are only a few of the major sectors, and investors would do well to invest in several different options to ensure that they don’t panic if one sector drops.

Diversify Through Total Market Funds.

There are mutual funds and ETFs that are effectively baskets of stocks. Some funds will include every single stock listed on a US exchange. These are called total market funds, and they can go a long way toward instant diversification. They can allow you to access everything from the smallest publicly listed companies all the way to companies with market caps that are more than $1 trillion.

Utilize Index Funds.

Those who want to more narrowly focus their investments can still diversify through index funds. Some popular funds focus on a single index. The S&P 500 includes 500 of the largest companies in the United States, and funds that follow this index passively tend to beat actively managed funds over the long term. Other funds might follow the Russell 2000, which includes small-cap stocks.

Consumer Staples.

Those looking to invest in individual companies might benefit from looking into consumer staples. These companies provide some of the major food and household products that millions of Americans use every day. Companies like Coca-Cola and Procter & Gamble would fall into this category. Even if there is a recession, these companies will continue to sell their products because people actually need them more than products sold by companies in the consumer discretionary category. For example people need to eat, but they don’t need to eat out at a restaurant. Consumer staples will typically lag in hot markets, but they will likely hold much of their value in an economic downturn.

Real Estate.

Many people have built wealth by purchasing rental properties outright. This requires active management and figuring out how to pay for repairs and how to get rid of people who don’t pay. There is another way to make money from real estate, and that is the REIT sector. REITs are real estate investment trusts, and the managers of these trusts handle all of the negatives so that you won’t have to. Additionally, REITs provide diversification instantly. According to Money Morning, REIT investing allows “you to invest in a diversified basket of real estate investments for as little as $5-$10.”

Investing in diversified funds can be a great way to make money in the stock market, and REITs are one of the top options. These investments pay relatively high dividends and allow investors to avoid many of the headaches that can come with investing in real estate.