What is a diversified stock portfolio?

Diversification is a primary tenet of long-term, intelligent investing. Diversification is the process of spreading your investments across multiple stocks from different industries, sectors, risk profiles, and more. By diversifying, you can lower the overall risk of your portfolio. So how can you build your own diversified stock portfolio?

Should a 60/40 portfolio be diversified?

For years, many financial advisors recommended building a 60/40 portfolio, allocating 60% of capital to stocks and 40% to fixed-income investments such as bonds. Meanwhile, others have argued for more stock exposure, especially for younger investors. One of the keys to a diversified portfolio is owning a wide variety of different stocks.

Why should you diversify your investment portfolio?

For example, when you diversify, you allocate a portion of your investments to riskier stock market trading, which you spread out across different types of stocks and companies. When diversifying, you also put money into safer investments, like bonds or mutual funds, to help balance out your portfolio.

What is an example of a stock portfolio?

An example of a stock portfolio could be the more traditional 60/40 portfolio, where 60% is allocated to stocks, and 40% is allocated to bonds. Another example of a stock portfolio could be a higher-risk portfolio consisting of over 70% stocks or higher-risk growth-oriented equities.