Starting a stocks and shares ISA is a great way to begin investing. But how do you diversify your portfolio? And what does a diverse portfolio mean? A diverse portfolio is one composed of many different stocks, assets and investment types. It can help to minimise risk should the value of one of your investments drop. Your capital is at risk with any investment, but creating income from different forms of investment types might reduce the chances of a financial loss.
Here are five ways to diversify your investment portfolio.
CFD Trading, also known as Contract For Difference, is a type of contract between a broker and an investor. The investor takes out a CFD with a broker at a certain point, and then exchanges the difference between the original value of the contract and the new value once the contract closes. Investors can take out a CFD on an asset like a company, and then will benefit if the market price of that company increases at the point that contract closes.
As an example, if an investor put 50 CFDs on a company and the market price of that company rose by £40, they would receive £200 at the point the contract closed. CFDs do not constitute any form of ownership or stake in the asset you take out a contract on.
Look At An Equity Fund
An equity fund is a mutual fund that invests in stocks. The aim of an equity fund is to have a range of stock investments for the investors, to mitigate risk. It can be actively managed by a broker or passively managed. The stock portfolio can be divided up by a range of factors, including by sector, country, and risk level.
Real Estate Crowdfunding Platforms
Real estate crowdfunding platforms allow you to have a stake in property without having to have a lot of cash upfront. Many companies will have a minimum investment of £500 or £1,000 and together will pool the cash of all the investors that pay into the fund. That money will then be used to invest in property. Once the property is purchased, the money generated from the property will then be divided up amongst the investors.
Create Some Diversity In Investment by Country And Sector
As well as diversifying the type of investment, you can also diversify your stocks by not limiting them to one country or sector. This will protect your investments from a decline in that sector or a market crash in a particular economy. Bear in mind that it is never possible to completely diversify your sectors – the pandemic has shown that certain events can affect the entire world, not just one particular country or industry.
Invest In Technology
Taking a risk by investing small into new technology companies or products might just be a risk that pays off. You might want to try investing in an emerging cryptocurrency, or blockchain technology. Cryptocurrency is financial value attributed to a digital string of code, and blockchain is the purchase ledger recording the transactions.
Your capital is always at risk with investments, but investing what you can afford into new funds and assets might just bring successful results. Try to mitigate risk by diversifying your current investments across different countries and sectors. Happy investing, and we hope this advice helps you protect your investments this year.