Wed Dec 11 2024, by Tyler Gardner

3 Effective Strategies for Diversifying Your Investments

Here are three ways to think about diversifying your investments. I'm Tyler, a former financial advisor and portfolio manager, and now I create financial content for free to help you understand investment strategies.

1. Invest in Multiple Stocks

Instead of putting all your money into a single tech stock, consider investing in about 40 tech stocks. This approach helps reduce the individual business risk associated with any one stock. If one company fails and owes you nothing, at least you're invested in about 49 other stocks.

2. Diversify Across Sectors

If you want to be a bit more sophisticated, remember that 50 tech stocks aren't truly diverse since they're all under the tech umbrella. The US markets are currently divided into 11 sectors, such as information technology, healthcare, financials, and consumer staples. Some sectors perform better than others under different economic conditions, so try diversifying those 40 to 50 individual stocks across various sectors.

3. Diversify Across Asset Classes

If you're looking to think about diversification like the professionals, you need to spread your investments across asset classes. The first two points focused solely on stocks, but consider allocating your investments like this: 75% in stocks, 10% in real estate, 10% in bonds, and 5% in commodities or cash equivalents. This type of diversification accounts for about 90% of your ultimate return and gives you the highest probability of achieving long-term growth with minimal risk.

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