Diversifying your portfolio is an important process as it help you to minimize risk and exposure. This basically means not putting all your eggs in one basket.
It can be pretty confusing for amateur investor as they do not have much space to diversify into due to the size of their capital. Regardless of your capital size, a simple form of diversification which I am going to show below can help you reduce your risk.
How I do it?
First, I allocate the amount of money I will be using to invest. This amount usually come in 10% of my monthly income.
Next, identify the investment vehicle you are going to use. If you are not sure about this, please check out my post on How to start Investing. And allocate percentage of money from your investment capital according to your risk tolerance.
My investment vehicle with percentage are as follow:
1) Reits/Stocks (30%)
2) Mutual funds (60%)
3) Precious Metal (5%)
4) Forex (5%)
My strategy is having higher percentage of my capital in lower risk investment like mutual funds/bonds. I use my precious metal investment as an insurance in an event where the market crash.
Of course this is just an example, you will have to figure out for yourself. If you have a higher risk tolerance you might want to put higher percentage into stocks or properties. Most importantly it must make sense to you and at time you must re-balance it according to how the market is reacting.
Remember you are in control of your capital, so every decision you make will shape your financial future.
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