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6 smart ways to diversify your investment portfolio

Follow these simple steps and you will reap financial success.

5 min read

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6 smart ways to diversify your investment portfolio
6 smart ways to diversify your investment portfolio

Anyone who has studied finance , even for a single day, could tell you that building a diversified investment portfolio is essential for success, mainly because it minimizes risk and enhances opportunities.

However, smart diversification is easier in theory than in practice. The investment strategy you have today can determine the financial success you will achieve in the coming years. Choosing the wrong diversifications can end up being as risky as not diversifying anything. So how do you bring your portfolio to financial success? The following six tips can help you.

1. Quality over quantity

Just because you have a large number of investments does not necessarily mean that your portfolio is well diversified. If you tend to focus only on local stocks, you may want to look at international options. Two of the most important factors when giving variety to your portfolio are value and growth. Some investments are profitable because they are already well valued, others are valuable for their growth potential. Make sure you have both in your portfolio.

2. Smart investors have liquidity

In addition to stocks, bonds, and real estate, a secure investment portfolio will include a large amount of cash. Liquidity offers security and stability and protects your other investments from unforeseen circumstances. Many investors are so aggressive that they run out of money to cope with difficult economic situations.

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Cash not only offers stability, but also allows investors to quickly take advantage of unique situations. For example, in 2015, Warren Buffet , famous for having a lot of money in his portfolio, was able to buy 1.6 million shares of Wells Fargo when the stock price suddenly fell.

When you build security and liquidity in your portfolio through cash, you will not only be able to reach the top even in the most difficult economic recessions, but you will also be able to beat other investors when the right opportunities arise.

3. Limit guesswork through franchising

Franchises are a proven investment strategy, with low risk and high potential, considering that their owners take loans from systems with per-existing recognition and proven success rates.

In fact, according to a publication by Seth Lederman of Frannexus , who works with professionals looking for franchise opportunities, “Most startups are at great risk when they start with unproven concepts and practices. With franchises, guesswork is minimized, and the chance for lasting success and wealth creation is significantly increased. ”

Franchises already come with their own marketing, customer loyalty, and even ready-made training systems. New business owners could save large amounts of money when they buy a franchise instead of creating a new independent business.

4. Investing in real estate adds variety

Investments in real estate work differently, and for this reason, some investors are cautious when entering this market. But the advantage of real estate is that there are many ways to benefit from it, since they generate wealth through rents, tax benefits, guarantees or immediate profits from a possible resale. The inherent diversity in real estate investments makes them a smart bet.

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5. Keep innovative investments to a minimum

Every now and then, an industry emerges that seems like an easy path to wealth, but it's important not to let yourself fall into this temptation. If you want to try it, invest a portion of your money, but keep the rest in other industries.

An example of what happens when too many investors put all their money on a growing trend was what happened during the dot-com bubble in 2000. The internet seemed like a dream, and many investors were not able to maintain smart strategies, therefore, wasting money when a large proportion of these companies turned out to be overvalued and their shares collapsed.

6. Don't make automatic decisions

Just because you think you have a beautifully diverse portfolio doesn't mean you can let your investments manage themselves. It is imperative to stay informed about each market in which you are operating. The more involved you are, the easier it is to notice red flags. You can also know when you need to withdraw a certain investment or when you should wait patiently for a bad streak to pass. People rarely make money by accident. Do not allow your investments to be handled automatically.

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