Many people have devoted large portions of their life and career to understanding the ups and downs of the market. While much effort has been put towards developing an explanatory model that can be used to predict future trends no such model exists.

Not all markets perform the same in a bull or bear market and some may cause an individual to suffer losses in their portfolio. If the portfolio is heavily invested in one or two areas the investor is exposing themselves to heavy losses. For this reason, one needs to diversify their portfolio. Here we will look at some of the basic strategies one can use to diversify their portfolio.

Invest In Different Investment Vehicles: Stocks are the most common investment vehicle found in the average portfolio and for good reason. They often provide good returns and can even provide benefits like dividends. 

This being said, other types of investment instruments exist which can give one a more well-rounded portfolio. ETFs, Commodities, Real Estate Investment Trusts (REITs) are good examples of other options.

Fixed Income Securities: The most common type of Fixed Income Securities are Bonds, Treasury Bills, CDs, and Asset-Backed Securities. These types of investment vehicles pay a fixed return and do not fluctuate based on market conditions. While the reward is much lower, so is the risk.

Understand Basic Market Movements: Diversifying one’s portfolio is easy in concept but not always in practice. Knowing what to invest in and when can be a difficult task. While one may not be able to predict market swings, one can usually say fairly reliably which industries tend to do better in certain market conditions. Gaining a grasp of basic macroeconomic concepts will certainly help an individual choose the right type of investment vehicle at the right time.

Consider Forex: While currency is not considered to be a standard part of one’s portfolio, it has certainly paid off well for many individuals. Buying and selling currency follows the same principles as buying as selling a stock, instead, the markers which one looks at are the country’s economies. To learn more about Forex visit Forex Academy.

Stay Vigilant: Not all stock picks are going to work out. This is just part of investing. Many people have a hard time knowing when to sell or “cut their losses”. Many get emotionally attached to a particular security; always believing it will “go back up”. One should be constantly analyzing their portfolio, looking for stocks that are not performing and sell them before they incur further losses. 

Asset Allocation Fund: For those who want a diverse portfolio but don’t have the time to conduct market research, an investment vehicle called an Asset Allocation Fund that provides an investor with a diverse portfolio across different asset classes. Many options exist depending upon one’s risk tolerance, preferred type of investment vehicles, and other variables.