Investment Diversification Strategies
This playbook outlines the sequential steps to diversify investments across multiple asset classes to reduce overall risk. It aims to provide a structured approach to creating a balanced portfolio.
Step 1: Review Portfolio
Evaluate the current investment portfolio to understand the existing asset allocation and identify areas of concentration risk.
Step 2: Set Goals
Define investment goals and risk tolerance to guide the diversification strategy.
Step 3: Asset Allocation
Decide on the target asset allocation that aligns with investment goals, considering various classes such as stocks, bonds, real estate, and cash.
Step 4: Research
Conduct research on different asset classes and investment opportunities within each class to identify potential investments.
Step 5: Investment Selection
Choose specific investments to build a diversified portfolio, ensuring they fit within the target asset allocation and risk profile.
Step 6: Rebalancing
Establish a schedule for regular portfolio reviews and rebalancing to maintain the desired asset allocation over time.
General Notes
Continuous Monitoring
Diversification strategies require ongoing monitoring to adapt to market changes and personal financial changes.
Diversification Limits
Keep in mind that while diversification helps to reduce unsystematic risk, it does not eliminate systematic risk and does not guarantee against loss.