Beginner Investors: How To Diversify Your Portfolio

Beginner Investors: How to Diversify Your Portfolio

Investing can be an intimidating venture when you first begin. There are a lot of terms and possible investments that you can make, which can make it very confusing. However, gathering as much information as possible can only help you in your investment journey. This information will help break down different investments and guide your investment strategy to diversify your portfolio as a beginner investor.

Invest in Different Asset Classes

An asset class is a group of investments that act similar to each other and are subject to the same laws and regulations. Examples of asset classes include cash, fixed income, commodities, equities, and real estate.

Different asset classes have different responses to the movement of the market. By investing in different asset classes, you can ensure that your portfolio will not suffer any major losses due to one drastic event. Different asset classes also have different ways of increasing wealth. Assets such as equities can increase wealth by the value of the equity increasing. Fixed-income assets can increase wealth through an increase in the value of the equity, and fixed-income assets can increase wealth through fixed-income payments such as dividends.

Diversifying your portfolio with different asset classes is important but diversifying the wealth within those asset classes is just as important. This means that you should not put the majority of your portfolio in one asset class. Instead, you should try to spread the money in your portfolio evenly amongst the asset classes that you are investing in.

Invest in Different Sectors of the Market

Sectors of the market is primarily concerned with the stock market. There are eleven different sectors of the stock market, which are:







        Consumer Discretionary

        Consumer Staples

        Information Technology

        Communication Services

        Real Estate

Including multiple sectors in your portfolio have similar benefits as diversifying asset classes. With 11 asset classes, it would be difficult to keep track of the movement of all sectors, so you do not have to spread your investments amongst all 11 sectors. However, you should try to pick four or five sectors to invest in and keep track of.

There are stock indexes that you can use to track the movements of different sectors. The S&P 500 and the Dow Jones Industrial Average are indexes that include stocks from many of these sectors. These indexes can give you a general idea of how each sector is performing.

Consider Different Types of Investments

Different types of investments are similar to investing in different asset classes. For example, if you are getting into real estate investing for beginners, then that would be a different investment type than purchasing a real estate company equity. However, there are some slight differences between asset classes and different types of investments.

Within equities investing you can make multiple types of investments. You can make a long purchase, options purchase, a short purchase, and a few other types of investments. Each of these investments is a different way for you to invest in a company's equity. However, each of these investments has different strategies. A long purchase is one where you are waiting for the equity of the company to go up. A short purchase is just the opposite. When you short a company, you are betting that the company's value decreases. Each of these investment types provides an opportunity to not only minimize risk within your entire portfolio, but these investments allow you to minimize the risk within your investments on a specific company too.


Diversifying your portfolio can provide stability to your portfolio. Many beginning investors are looking to get rich quick, which can lead to their portfolios being concentrated on a couple of investments. This is dangerous because of the potential risk that accompanies those investments. Spreading your investments out will help minimize risk and it will allow you to properly play the movement of the market.

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