Tips to diversify your investment portfolio

One of the most basic investment advice that you should heed to is the necessity of diversifying your portfolio. In order to properly balance the risks and rewards, your portfolio should have a nice mix of tax-saving tools, insurance, a savings plan online, and so on. Here are some of the tips to balance your portfolio the right way.

Understand why you need to diversify

Do not try to diversify your portfolio simply because your friend said it’s a good idea, or even when your financial advisor suggests it. Diversify your portfolio because you understand the benefits of it. You need to realize how diversification is helpful in absorbing the shocks of market volatility, along with how it can fetch you better rewards in the long run. Ask your financial advisor to explain the perks of diversification in detail to you.

Make the most of money market securities

Money market securities include certificates of deposit, treasury bills, and commercial papers. This is a safe form of investment that also comes with liquidation benefits. In fact, the security factor is the main draw of this short-term investment that is issued by the Reserve Bank of India. Now, these will not get you great returns, but that is okay. You have other options in your portfolio to get those high returns.

Understand the right time to get out

Diversifying your portfolio will not be of much help if you are not careful about when to get out. Investments are not things you keep on autopilot for an infinite time because there are always market forces at work. So, stay updated about your investments and take note of any major or minor changes in the market situations. A smart investor not only knows when you invest, but also makes sure he/she gets out of the scheme at the right time to mitigate losses.

Keep adding to the investments regularly

The idea is to diversify your portfolio and increase the investments as well. For instance, if you used to invest INR 1000 monthly when you started your journey five years back, do not keep investing the same amount now.

Of course, you do not need to go from 1,000 to 10,000 in a week. But try to increase it gradually. Set the pace of increasing the amount you invest as per your financial situation. If you increase it by about INR 500 every year and you can’t do that for one year, it’s completely fine.

Assess the commissions you are paying

If you have a financial advisor to oversee things, you are paying him/her a certain amount every month. So, it is important to stop and understand what you are getting in return for that payment. How much has your wealth increased in all these years that the advisor has been working for you?

Follow the tips given above and you will benefit more from your investments in the long run. Take the steps you need to make sure that your investment portfolio is even more diversified.

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