How to diversify your portfolio in a safe, but profitable way

We all know the basic concept of diversifying your portfolio to make your investments safer. The following are some guidelines for diversifying your portfolio in a safe but profitable way:

In stocks you can diversify by doing the following.

1. Growth potential and price stability
2. How you earn money
3. Economic climate
4. Product

Growth potential.you will want to diversify your investment through a variety of large, mid, and small cap companies. Well known, established, bigger companies may not grow dramatically, but they do offer stability, and ensure you won't lose much money if any. Mid sized companies offer more opportunity for growth, and thus more opportunity for earning, but with that comes more risk. Small is the biggest potential, but also the biggest risk. So, diversify in a safe but profitable way by spreading your investments among these three types of companies.

The next thing you will want to do is diversify among the time it takes to earn money. Invest in some stocks that pay out profits as dividends, which means regular income, in some that require you to reinvest your profits to keep growing, and some stocks that offer both, income opportunity and growth opportunity.

You will also want to invest in the global marketplace in some stable industrialized companies, and some less predictable companies. This means great potential for profit with less risk.

You will also want to diversify the type of products or services you invest in.

With bonds you can diversify by doing the following..
1. Type of bond
2. Quality of bond
3. Maturity

There are a number of bond types out there, including treasuries, government bonds, municipal bonds, and corporate bonds. Some are free from taxes, some are not. To give yourself a safe but profitable diversification, you will want to invest in a few of these, but you will want to recognize the fact that treasuries are the safest, and are free from state and local income tax, while corporate bonds are taxable. So, keep that in mind when investing.

The quality of the bond depends on the creditworthiness of the borrower. The credit rating of the bond affects the balance between safety and the amount of interest it pays. In general the higher the quality, the lower the interest. So, get a mix of both and you have a safety net, but also the opportunity for greater profits.

Last but not least in diversifying your bonds for safety and profitability is the consideration of how long you are willing to lend your money. Long-term bonds have higher interest rates, but also higher price volatility. Short-term means lower interest, and less risk. So, diversify in this area as well.

You do not know which investments are the right ones, which will go up, or which will go down. You can't know what is going to happen to the economy, you only can guess and speculate. So, spreading your money among a variety of investments that all react differently to events will help you to manage risk, no matter what type of investments you choose.