This article will talk about what is diversified investment portfolio is, how to do diversification, why diversification is so important.
Here is a small story, people think diversification is just having different kinds of stocks from various sectors and multiple companies. Partially true. But I could see that people are holding 150+ different stocks to make their portfolio to diverse. In this way, you never make good wealth in the future. It will be very difficult to check the performance of these 150+ stocks on regular basis.
Investment doesn’t mean you have to purchase and forget forever. It’s always preferable to check your portfolio on a timely basis.
What is diversification in Portfolio?
There is a quote saying, don’t put all the eggs in the same basket. This is one of the popular says for Portfolio diversification. Diversification means you are investing or putting your money into various assets according to the risk and return. So that if one asset gives you losses and another will give profits. This is all about balancing your profile that in the long run, you won’t end up making huge losses.
Why diversification is soo important?
Let me explain to you with an example, assume as of now IT industry is booming in the market and you will invest everything in one IT stock. It will give you a good return also in a couple of months. As an investment, you will add more and more to the same stock. Then if the market gets bearish due to the IT sector then your ONE IT stock will give you huge losses. You can’t bear the huge losses at one point in your life.
So considering the risk management factor, it’s always advisable to plan a diversified investment portfolio.
How to diversify the portfolio?
Lets me keep it simple and you can do your own research on each topic. So first case scenario, if you are in your 20’s or 30’s you can take certain risks because you can earn in upcoming years.
In that, you have to consider the investment in stocks. Especially when it comes to stock diversification between Indian stocks and Abroad stocks. So that you will get better benefits.
How much stock can I have in my portfolio?
I would prefer having 15 to 20 Stocks which can be further divided like 10 stocks I will add to the portfolio now and the rest of the count will be added whenever a good opportunity will come in future.
The count of stocks will be a mixer of Large cap, Midcap and small-cap as well with good analysis of fundamentals of the stocks.
The next diversification can be done using Mutual Funds. The Mutual funds themselves is the diversification option. 3-4 good mutual is more than enough to make it happen. There are different kinds of mutual funds like equity mutual funds, liquid funds, debt mutual funds and hybrid mutual funds.
The small case is one of the most used products from Zerodha and in small cases, you can target sectors wise basket of stocks. To explain, an Electronic vehicle small case will be considered having good company in that field.
You can purchase some good bonds. The bond basically is a fixed income that represents a loan made by an investor to a borrower. Corporate bonds will help the company to raise the capital for the company they will give certain per cent as profit to the lender.
Putting money into FD and RD is not a good option an as investment but it is always recommended to have an emergency fund. The emergency fund will be added in FD so that it will be safe and you get a certain percentage as a return which is better than keeping it in a saving bank account.
Again you can put a certain percentage of your money into Digital Gold. This will be great for a long term investment where the gold price will always increase in the coming year.
Crypto is a very high volatile in nature and high-risk asset. You can add 1% to 2% of your income on some of the good cryptos and let them grow. The crypto returns will be huge as well but the risk is also high. So please do consider your risk appetite and they invest in the following assets.
Open your Wazirx Account Now ( Crypto Trading ): Wazirx Account
Now it’s your time to analyse your risk according to your need and age. How much you are earning and how much you can save on a monthly basis in that what proportion you want to invest on various assets classes. If you are a very beginner try mutual funds or understand the stock market which is a great source of investment and gives you great compounding in future.
I hope this article helped you in understanding a diversified investment portfolio.
If you have any queries or comments let me know.
Thank you for your time. Happy Investment!