Hannah & Martin, SFUSD supporters.
Putting them first since 2017.


How to diversify your portfolio

Portfolio diversification is an investment strategy that involves spreading out your investments across different sectors. Building a diverse investment portfolio can mitigate risks and yield higher rewards. Learn how to diversify your portfolio here with 6 easy tips.

6 Easy Tips for Building a Diverse Investment Portfolio


Portfolio diversification is a common term for many financial planners, fund managers, and individual investors. It’s an investment strategy that involves including many different types of investments in a single portfolio.

Spreading out your investments across different sectors can help mitigate risks and yield higher rewards. The idea behind the strategy is fairly simple: if you own stocks in several different industries, even if one is seeing a decline, another could be seeing significant gains. So, your portfolio will still increase in value.


What does portfolio diversification look like?

A diversified portfolio contains stocks across different industries, countries, and risk profiles. A well-diversified portfolio will also include investments like bonds, commodities, and real estate.

The overall goal in diversifying your portfolio is to reduce your overall risk profile. By containing a variety of assets, your portfolio works to reduce your risk of a permanent loss of capital and overall volatility.

Conventional wisdom is to build a 60/40 portfolio, with 60% going towards stocks and 40% to fixed-income investments like bonds.

The key to a diversified portfolio is owning stocks in a wide variety of industries such as tech, energy, healthcare, as well as stocks from other industries. You don’t need exposure to every single sector, but variety is key.

You should also consider holding some investments that don’t ebb and flow with daily market fluctuations. These are called non-correlated investments. They include bonds, CDs, gold, and real estate.


Diversify your portfolio with 6 tips

Diversifying your portfolio isn’t as hard as it might sound. Here are 6 steps to help get you started.


1. Invest in multiple stocks and sectors

By putting all your money in one stock or sector, you’re significantly increasing your risk profile. Instead, consider investing in a handful of companies you know and trust. Consider companies you use in your daily life.

Look beyond stocks, too. You could also consider exchange-traded funds (EFTs), commodities, and real estate investment trusts (REITs).

Don’t spread yourself or your portfolio too thin though. If you don’t have the time or resources to keep up with 100 different investments, it could hurt you in the long run. Try to limit that number to 20 or 30, or whatever you think is manageable.


2. Include low-fee index funds

You might want to add some index funds to your portfolio. Securities that track various indexes can be a great long-term diversification investment.

Index funds often come with low fees because you’re not paying for the expertise of a fund manager to hand-pick investments for you.

However, most of these indexes are passively managed, which can be a potential drawback. So, if there is a decline in the market, the index fund may not adapt quickly enough.


3. Consider bonds

Investing in fixed-income assets like bonds can help reduce your overall risk profile, since these types of investments don’t ebb and flow with daily market fluctuations.

It’s true that adding some bonds will likely reduce your portfolio’s average rate of return. But it’s also true that they tend to reduce losses in bad years and reduce the number of years with an overall loss.


4. Invest regularly

Try to invest on a regular basis. Figure out how much you can afford to invest and consider a dollar-cost averaging approach.

The idea behind this approach is to cut investment risk by investing the same amount of money over a period of time.

With dollar-cost averaging, you invest money on a regular basis into a specific selection of stocks. With this strategy, you’ll buy more shares when prices are low and fewer shares when prices are high.


5. Know when to sell

Automating your investment strategy can save you time, but it can also cost you if you’re not actively paying attention to the market.

Stay current with your investments and with any changes in overall market conditions. Know what is happening in the companies you’re investing in.

If a particular stock is seeing significant declines, it might be time to cut your losses and move on to other investments.


6. Watch out for fees

Know what you’re paying in brokerage fees and what you’re getting out of them. Some firms charge transactional fees, while others charge a monthly fee.

Fees can add up over time and can chip away at your overall gains. Make sure you pay attention to any changes in your fees.

And remember, the cheapest option is not always the best. When paying fees on your trades, make sure you’re getting what you pay for.


Diversifying your portfolio is about trade-offs. A successfully diversified portfolio reduces your overall risk profile, but it can also affect your return potential.

Eliminating volatility in your portfolio and reducing the risk of total loss of investment is a high yield reward in its own.

If you’d like to learn more about investing, we have some quick and easy resources in our free Financial Education Center.

Have you run into financial trouble with your portfolio? We’ve got your back. We offer free, confidential financial counseling to help get you back on track.



Related Content


Investing 101

The invest­ment land­scape can be extreme­ly dynam­ic and ever-evolv­ing. The first step is learn­ing to dis­tin­guish dif­fer­ent types of invest­ments and their indi­vid­ual risks.

Learn More


What is a Bond?

When you invest in a bond, you’re lend­ing a gov­ern­ment or busi­ness mon­ey for a set peri­od of time, with the promise of repay­ment of that mon­ey plus inter­est. Learn more here.

Learn More

Personal Finance

5 Easy Ways to Cut Monthly Expenses

If you’ve noticed that your month­ly expens­es always seem to equal what you’re mak­ing each month, it might be time to make a change. Here are 5 easy ways to cut your month­ly expens­es and start sav­ing money. 

Learn More

Discover More

Nehemiah, international photographer.
Putting him first since 2012.

Checking you can count on

We offer the Bay Area’s best checking account. No minimum balance, no monthly fee, and up to 12 ATM surcharge rebates per month.

Learn More
Nehemiah, international photographer.
Putting him first since 2012.
Kundan, Bay Area artist.
Putting her first since 2016.

Get the card that works for you

Our fee-friendly Platinum Visa Credit Card comes with rewards, travel benefits, and a low APR.

Learn More
Kundan, Bay Area artist.
Putting her first since 2016.

Let's Talk

As a local credit union, we want to get to know you and help you achieve your goals. Come into a branch or call us today. Our people are happy to serve you.


(415) 674-4800
(888) 499-FIRE (3473)
Mon – Fri 7:00 AM – 7:00 PM
Sat 9:00AM - 5:00PM


Stop by a branch

Branch hours
Mon – Fri 9:30 AM – 5:30 PM
Saturday 10:00 AM – 2:00 PM

Find a Branch or ATM