Why you need a diversified portfolio

In order to make money in the investment world, you need to have a diversified portfolio. Having a diversified portfolio means you will be able to participate in some high-risk investments and be protected with low-risk investments like bonds. If you take all your money and put it into one stock and that stock fails, you are left with nothing. Instead of putting all your money toward one stock, a diversified portfolio will put this money into multiple stocks, allowing you to earn money from various sources. Take a look your current portfolio and figure out what type of investments you currently have. You may have some high-risk ventures and then some low-risk strategies that are used to keep your account steady and afloat during hard times.

So how do you build a diversified portfolio? Here are some easy tips to get you started:

Tip # 1 - Review your Portfolio
Take a look at how much money you are putting into your investment account. How much money is going toward stocks, bonds, and mutual funds? Your portfolio should be spread out with all of them. Some people do about 10 percent to bonds (for investment insurance) and then the rest to mutual funds and stocks. This is a good policy to follow because you are protected with your bonds in case the market collapses. Gold and government bonds are always smart investments to pick up for your portfolio because they are guaranteed to protect you.

Tip # 2 - Look at Stocks
Almost everyone is familiar with the stock market world and buying and selling of stocks. Stock investing comes with the most risk, but it also comes with a big reward if you pick the right ones. The reason why stocks are high-risk investments is because you are investing in a company and the company is not responsible to pay this money to you if their price goes down and your stock loses its value. The investor assumes all the risk and is responsible for keeping themselves afloat. What would happen to your portfolio if a company declared bankruptcy? How much money would you lose if you have a great deal of stock in that company? Choose some low-risk stocks to start off while you are getting a feel for the stock market. If it works out well for you, you can move on to some medium-risk and high-risk stocks.

Tip # 3 - Invest in bonds
Remember the old "War Bonds" pictures from World War II and even Vietnam? Bonds have always been a popular investment decision and they are a great way to diversify your portfolio. A bond is a debt that is owed to you. War bonds are used to give the government money to pay for the equipment the Army needs in order to continue fighting in the war. There are other types of government bonds to invest in as well. Basically a bond is like being a bank to a company. You are providing them with money and they will re-pay this money to you, plus interest. A bond is a great way to make money, but it won't be a lot of money. It is a small amount of money and it will all depend on how many bonds you purchase. The nice thing about a bond is that the company must re-pay the money to you, even if they declare bankruptcy. If you are a low-risk investor, bonds are always a safe investment strategy.

Tip # 4 - Look into Mutual Funds
If you fall into the middle of investing, meaning you aren't into high-risk investments and you do want more money than you would earn with low-risk investments, mutual funds are your answer. With a mutual fund, you are pooling your money with other investors and this money is used to purchase a group of different stocks and bonds. Mutual funds are great for the investor that doesn't know much about the investing world and they want to keep their hands out of it and pay someone else to worry about their investments.