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A diverse portfolio of investments is the backbone of most successful traders. Spreading around your investments into many different markets and assets will help ensure your assets are protected in such uncertain financial times. We’ll show you not only why it’s imperative you diversify your portfolio, but also how.
The Benefits of a Diverse Portfolio
Whether you’re investing to grow capital for a specific purpose or you’re looking to bolster your state pension, an investment portfolio is a great place to start. However, having a portfolio in and of itself, might not be the cash cow you were hoping for.
To really reap the rewards of investment, you should consider diversifying. Spreading capital across more than one investment category can help protect your assets should one of the sectors you’ve invested in not perform as expected.
Whilst a diverse portfolio can protect your assets, it can also help increase your profit potential too. Alongside protection and profit, a diverse portfolio provides you with liquidity. Unlike property, where cash is locked into a physical asset that can only be released through selling or equity release, an investment portfolio comprising stocks and shares will provide you with liquidity quickly.
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How to Diversify an Investment Portfolio
Whether you’re new to investing or you already have an extensive portfolio, you should always seek professional advice and expertise. However, here are some tried and tested ways you can diversify your investment portfolio.
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By opting to utilize spread betting, you’re able to speculate on a variety of markets without owning the underlying asset. This provides a perfect opportunity to invest in different areas and markets without having ties to them. This provides a way to easily diversify your investments over many different assets and markets.
Diversify Your Trading
Foreign exchange trading is one of the easiest ways to diversify your trading. When trading on the FOREX market, you should invest in a variety of major, minor and exotic pairs. This will provide you with a good spread of trades, rather than resting all your assets in one pair.
Alternative investments tend to be illiquid compared with other investments. Whilst this does mean they can’t quickly or easily be converted into cash, they do play a role in long-term investment plans.
Typical alternative investments to diversify your portfolio include property, hedge funds, debt investing, and commodities trading.
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Be Aware of Your Investments
Once you have a diverse portfolio of different types of investments, you need to still make sure you keep an eye on them if you want to maximize profits. Leaving them and expecting them to do well is foolhardy. You should monitor the markets to help you understand trends and when to ride out a crash and when to sell.