Portfolio Not Diverse Enough? 3 Ways to Branch Out

You’ll often hear that it’s important to maintain a diverse investment portfolio. And that’s good advice.

A diverse portfolio could open the door to building lots of wealth over time. Just as importantly, diversifying your holdings could help minimize losses during periods of stock market volatility (something investors today may know a thing or two about).

If you feel that you need to branch out in your portfolio, you can try loading up on stocks from market sectors you’re not currently invested in. But an easier or better route may be to add these investments instead.

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1. ETFs

ETFs, or exchanged-traded funds, are pooled investments that allow you to own a whole bunch of different companies at once. If you’re looking to diversify, it pays to add broad market ETFs to your portfolio. Doing so is an easy way to branch out without having to put a lot of thought or time into your stock-picking decisions.

Say you decide to buy shares of an S&P 500 ETF. In doing so, you effectively get to own a piece of 500 different companies. If that isn’t diverse, what is?

2. REITs

REITs, or real estate investment trusts, are companies that make money by operating different properties. They’re similar to stocks in that many trade publicly and pay dividends to investors on an ongoing basis. But because they’re not selling a service or product, but rather, have a different revenue stream, they’re a good way to diversify within your portfolio.

You should also know that REITs must distribute at least 90% of their taxable income to shareholders in dividend form each year. Because of this, you’ll commonly find that REITs pay higher dividends than your typical stock.

Now it’s important to diversify within the world of REITs. That could mean buying some industrial REITs, some data center REITs, and some healthcare REITs. Just as you wouldn’t want to solely own stocks from a single market sector, so too should you avoid that when buying REITs.

3. Crypto

Cryptocurrency isn’t for the faint of heart, and there are risks associated with owning it. But if you’ve yet to dabble in the world of digital currencies and are looking to branch out, then it’s an option worth considering — with some caveats, of course.

First, do your research before diving in, since there are actually thousands of cryptocurrencies you can choose to invest in. Next, start small. Rather than invest 25% of your portfolio in crypto, start with, say, 2% to 5% of your assets and see how that goes. Or, start with 1% if you’re skittish about owning crypto and aren’t really sure it’s the best choice given your long-term strategy and appetite for risk.

The crypto market can be very volatile — more so than the stock market. So you’ll want to take things nice and slow if you’re going to branch out into digital currencies.

Maintaining a diverse portfolio could be your ticket to success as an investor. Consider ETFs, REITs, and crypto if you’re looking to mix things up.

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