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Investing is the key to growing your wealth, but all of the investing jargon can make it difficult to get started on the right foot. If you’ve waded into the waters of investing, you’ve heard the term “diverse portfolio.” Don’t worry, it’s not as complicated as it may seem.
What does it mean to diversify your portfolio? Let’s break it down.
A diverse portfolio has several different asset types, which reduces your portfolio’s risk. When you incorporate different asset types into your portfolio, one asset or asset class won’t affect the performance of your entire portfolio.
You can diversify your portfolio two ways: across asset classes and within asset classes. When you diversify across asset classes, you are investing in various types of assets. For example, instead of just investing in stocks, one would also invest in bonds and real estate.
Diversifying within asset classes ensures that all of your eggs aren’t going into one basket. Someone with a diverse portfolio will have investments across varying sectors. Diversify your stock portfolio by investing in tech, industrials, health care, and more.
A diverse portfolio is safer for your investments and your financial growth. Diversify your investment portfolio as soon as possible, even if you’re starting small. The sooner you diversify your portfolio, the better.