The best ways to diversify your portfolio

Like most people these days, many are looking for ways for their money to go further and make better investments, regardless of how big or small those investments are. It’s crucial to recognise the importance of spreading out your investments, no matter how small, to safeguard your portfolio and enhance returns, especially when navigating uncertainties like rising inflation.

Even if that just means spreading it across things like savings accounts, ISA's and stocks, here we will explore ways to diversify your portfolio.

Understanding basic core assets

Allocating investments across different assets can help balance risk and return, as different assets often perform differently under various market conditions. A well-diversified portfolio means choosing a variety of investments:

Equities (stocks): These represent ownership in companies and offer growth potential but can often come with higher volatility.

Bonds (fixed income): These provide regular interest payments and are generally considered lower risk compared to equities.

Cash and cash equivalents: Savings accounts and money market funds offer liquidity and stability.

Property (real estate): Investments in physical properties can provide income and potential capital appreciation.

Commodities: Assets like gold, oil and agricultural products can act as hedges against inflation and market volatility.

Another option is to invest via index trading and gain exposure to entire markets, rather than just one single entity.

Investing internationally 

It's never been easier to invest in assets overseas and there can be some real advantages to doing, which I will share below.

Geographical diversification: Investing in markets outside the UK reduces reliance on the domestic economy and can capitalise on growth in other regions.

Currency diversification: Exposure to foreign currencies can provide additional returns or hedging benefits but it also introduces currency risk.

Exchange-Traded Funds (ETFs) that track global indices offer a straightforward way to gain international exposure.

Sector and industry diversification

Diversifying across various sectors and industries can prevent your portfolio from being dependent on one industry or sector. 

Sector diversification: Investing in different sectors such as technology, healthcare and consumer goods can protect against sector-specific downturns.

Industry diversification: Within sectors, spreading investments across multiple industries or companies can also reduce risk.

Regular portfolio review and rebalancing

Diversification is not a one-time thing. By taking the time to regularly review and rebalance your portfolio, you can ensure that it remains aligned with your financial goals and risk tolerance. As with anything the market changes and so does your investments.You should also take the time to educate yourself on the risks of investing via the Financial Conduct Authority and make sure you stay informed about market developments.