Diversification of the assets in the portfolio is widely used tool used by financial planners, fund managers and individual investors. The markets are usually very dynamic and it is impossible to predict the exact movement of the indexes. In such conditions, diversified portfolio plays an important role in minimizing the risks and maximizing the profits.
Investors should practise disciplined investing along with a diversified portfolio. The diversification of portfolio is a prerequisite to receive good returns from the market in the long run. Due to fluctuations in the market, investors may lose about 80% in the market before reacting to the situation. Thus, Investors can rely on the diversification as a suitable offense for best defence. Generally, a well-diversified portfolio along with an investment horizon for a time period of three to five years can survive major upheavals in the markets.
Investing can be rewarding, informative and educational; if one follows the below mentioned steps.
· Disciplined approach
· Using diversification
· Dollar-cost-averaging strategies
Spreading out the investments
Investors should invest in the equities as they provide great returns, however it is strictly advised to not put all of your money in the investments of one stock or specified sector. It is recommended that investor should create his/her own virtual mutual fund by making investments in few companies that are doing well and trustworthy. It is good to make the investments in the companies you know well or whose goods and services you use. It is a good way of making healthy approach to one sector.
Invest in Index or Bond Funds
As an investor you should consider adding fixed-income funds or index funds to your portfolio. One of the excellent ways for long-term diversification investment is to invest in securities that track various indexes. Another way of further hedging your portfolio against market uncertainties is to add some fixed-income solutions.
Continue Building your portfolio
It is important to keep adding investments on a standard regular basis and grow your portfolio. One should avoid investing the Lump-sum amount in volatile or uncertain market conditions. This strategy of investing helps in smoothing out the peaks and valleys produced by volatile market conditions. Thus, as an investor, one should invest money regularly into a specified portfolio of funds/stocks.
Aware of the time to Exit
It is mandatory for a smart investor to know when to exit the market. Some of the sound strategies of managing portfolios are dollar-cost averaging, purchasing, and holding. One should not ignore the fact that time to exit the market is very crucial for remaining in tune with market conditions and staying current with the market investments. One should know the current happenings in the companies you have invested in.
Be alert regarding your commissions
In case, you are not a trader, you should comprehend what you are receiving by paying fees to the firms for managing your portfolio. There are some firms that charges monthly fees while others charge transactional fees. One should be aware of the payments you are making and returns you are receiving.