How to Diversify Your Investments

Protect yourself from the ups and downs of the stock market by diversifying your investment portfolio. Mutual funds provide the easiest way to diversify.

Instructions

Difficulty: Easy

1. Know that the broader your investment portfolio, the less vulnerable it is to the ups and downs of individual companies or industries.
2. Consider investing in mutual funds if you don't have time or money to invest in a broad mix of individual stocks.
3. Understand that mutual funds generally buy the stocks of many companies, freeing you of the need to keep track of dozens of individual stocks.
4. Evaluate mutual funds by looking at their total returns over the past three to five years. How do they compare with the market as a whole?
5. Find out how much the funds charge in annual management fees. The fees will take a toll on your return.
6. Invest in a mix of mutual funds. Some focus on hot-growth companies, others are more conservative. Some invest in bonds, others buy only stocks.
7. Choose a mix of investments that matches your goals. If you are 55 and saving for retirement, your goals and your portfolio won't match those of a 22-year-old who is saving for a new boat.
8. Update your portfolio as your goals change and as the market changes.

Tips & Warnings

• Determine your investment goals before you start investing.