What makes up a diverse portfolio?

To create a diverse portfolio, you should invest in a range of different types of assets, such as stocks, bonds, commodities real estate, and crypto. This will help to spread your risk and potentially maximize your returns, as they say, never put all your eggs in one basket!

If you’re just starting out good things to consider to help you determine how to allocate your investments are to list your financial goals, contemplate your risk tolerance, and plan out your investment time horizon.

In this foundation-building article, we will look at all these factors and more and help provide you with all the knowledge you need to build an Antifragile portfolio that grows stronger during volatile periods of uncertainty and would make Nassim Nicholas Taleb proud!

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Now let’s have a look at what you need to build a great investment portfolio

How to build a diverse portfolio?

Creating a diverse portfolio is one of the best things you can do for your personal or professional finances, however, because of the difference in individual circumstances, financial situations, and aversions to risk, differences in priorties and goals, and ever changing market conditions it makes it impossible to create a preset solution that will work for every individual.

Luckily this does not mean we cannot consider all of these factors and break them down into personal considerations and practical steps that can be applied universally to guide you through the process and provide you with the knowledge and understanding to solve this conundrum for yourself.

The 8 steps to building a diverse portfolio are:

Applying these 8 steps will grant you the knoweldge neccessery to create a diverse portoflio and master your finances. They are practical and while there is a large amount of information to digest, we ware going to go take you over every step and provide you with everything you need to make a success of it.

We start with the most important step:

Always do your own research

It’s important to do your own research before investing because your investment decisions can have a significant impact on your financial future. By conducting your own research, you can better understand the risks and potential rewards of different investment options and make informed decisions that align with your financial goals and risk tolerance.

This article is a great start, however, even the information we provide should be double-checked against other sources and you should always make use of your personal discretion to see what fits well into your individual life.

Doing your own research can help you avoid scams and other pitfalls that can put your money at risk. While professional advice can be helpful, it’s ultimately up to you to make the final decision about where to invest your money, so it’s important to take the time to educate yourself and understand your options.

With that out of the way, let’s hop into the content and grow your understanding of portfolio diversification!

A diverse portfolio protects the value of your assets

The 8 things to consider when building a great portfolio

Everyone’s life is different, we all have our own personal challenges, assets, and individual lists of desires that we want to fulfill. Before investing in anything, it is important that you understand, what matters to you!

Here are 8 things to consider when you want to build a diverse portfolio:

Your starting point :

There is a big difference in starting off with savings of $100 and savings of $100 000 dollars, or if you are 24 years old and starting off your investment journey or 52. There is no right or wrong in this, just that the you will be making different types of decisions based on where you are at in life.
Your financial goals:

What are you trying to achieve with your investments? Are you saving for eductation, retirement, a down payment on a house, earning extra income, or something else? Your investment choices should be aligned with your financial goals, which you can learn how to set by reading more about them in our Complete Guide to personal goal setting.
Your risk tolerance:

How much risk are you willing to take on in pursuit of your financial goals? Investing in stocks, for example, can provide the potential for higher returns, but it also carries more risk than investments in bonds or cash.
Your investment time horizon:

How long do you plan to hold your investments? If you have a shorter time horizon, you may want to take on more risk in pursuit of higher returns. If you have a longer time horizon, it is might be better to be preserving your capital and generate a steady stream of income.
Diversification:

Diversification is a key principle of investing, which involves spreading your money across a range of different assets and investment vehicles. This can help to reduce your overall risk and potentially maximize your returns, and this is the main purpose of this article!
Your level of technical knowledge:

Investing can be complex, and it’s important to understand the risks and potential rewards of different investment options. If you have a high level of technical knowledge, you may be comfortable with more complex investment strategies and vehicles. If you have a lower level of technical knowledge, you may want to stick with simpler, more straightforward investment options. It’s always a good idea to educate yourself and seek professional advice if you have any questions or concerns about your investments.
The amount of time you want to spend managing it:

Investing can be time-consuming, especially if you choose to manage your portfolio actively. If you have a busy schedule and don’t want to spend a lot of time monitoring your investments, you may want to consider investment options that are more hands-off, such as index funds or target-date funds. These types of investments can offer a good balance between potential returns and the amount of time and effort required to manage them.
Your personal values:

Your investments can have a real-world impact on society and the environment. If you have strong personal values, you may want to consider investing in companies and funds that align with those values. For example, if you care about the environment, you may want to invest in companies that focus on renewable energy or sustainability.

Now that we have an idea of what we should be considering, we are going to define a few important concepts before hopping directly into some great examples, by the end of this article you will have everything you need to build a diverse portfolio, filled with well–balanced investments you are comfortable with making!

What does antifragility have to do with a diverse portfolio?

We referenced it at the start of this article, but antifragility is one of the best things you can strive for when building a portfolio, and it remains one of the very best books I have read on investing & finance!

Antifragility is a concept developed by the philosopher and statistician Nassim Nicholas Taleb, which refers to the ability of some systems to become stronger and more resilient as a result of stressors, volatility, and disorder.

In the context of investing, a diverse portfolio can be considered antifragile if it is able to withstand market shocks and other external factors that can impact individual assets. For example, if one component of your portfolio experiences a downturn, the other components may be able to offset the loss and help to protect your overall investment.

Creating a good investment strategy based on antifragility

A good investment strategy for a balanced portfolio would be to invest in a range of different assets, including stocks, bonds, real estate, and cash, in order to spread your risk and potentially maximize your returns. This type of portfolio is often referred to as a “balanced” or “diversified” portfolio because it includes a mix of different asset classes that have different risk and return characteristics.

When developing a balanced investment strategy, it’s important to consider your financial goals, risk tolerance, and investment time horizon. For example:

If you’re a younger investor with a longer time horizon, you may be able to afford to take on more risk in order to potentially earn higher returns. In this case, you may want to include more crypto or stocks in your portfolio, as they have the potential to generate higher returns over the long term, but they also carry more volatility and risk.

On the other hand, if you’re an older investor with a shorter time horizon or a lower risk tolerance, you may want to include more bonds and cash in your portfolio to provide a stable source of income and reduce your overall risk.

Regardless of your specific situation, it’s important to regularly review and rebalance your portfolio to ensure that it continues to align with your investment goals and risk profile. You may also want to seek professional advice from a financial advisor or other experts to help you develop and implement an effective investment strategy.

By investing in a range of different assets, you can help to create an antifragile portfolio that is better able to withstand market volatility and other risks.

Make your portfolio antifragile through diversification

Low Risk Vs High-risk

What is risk?

Risk is defined as a situation involving exposure to danger, or as the possibility of loss and or injury. In finance we look at it as a any uncertainty with respect to your investments that has the potential to negatively impact your financial welfare.

In order to scale it and use it as a tool, we split it into three levels :

Low-risk investments are investment vehicles that offer a relatively low level of risk, compared to other types of investments. They may provide lower potential returns than higher-risk investments, but they also carry a lower level of risk. Examples of low-risk investments include Treasury bills, certificates of deposit, and money market funds.

Medium-risk investments are investment vehicles that offer a moderate level of risk, compared to other types of investments. They may provide higher potential returns than low-risk investments, but they also carry a higher level of risk. Examples of medium-risk investments include diversified stock funds and real estate investment trusts (REITs).

High-risk investments are investment vehicles that offer a relatively high level of risk, compared to other types of investments. They may provide the potential for higher returns than low- or medium-risk investments, but they also carry a higher level of risk. Examples of high-risk investments include emerging market stocks, high-yield bonds, and cryptocurrencies.

Cash is also a form of portfiolio diversification

Short Term & Medium Term Vs Long Term investments

What is a time horizon?

Time horizons are periods where investments are held until they are needed.Time horizons also vary according to the time by which you begin investing.Time horizons vary according to the investment goal. Just as with risk,

We split it into three levels :

Short-term investments are investment vehicles that are intended to be held for a relatively short period of time, typically less than three years. They may offer a lower level of potential returns than longer-term investments, but they also typically carry a lower level of risk. Short-term investments can be a good choice for investors who have a short investment time horizon or who need access to their money in the near future.

Medium-term investments are investment vehicles that are intended to be held for a moderate period of time, typically between three and 10 years. They may offer a higher level of potential returns than short-term investments, but they also typically carry a higher level of risk. Medium-term investments can be a good choice for investors who have a medium-term investment time horizon and are willing to take on a moderate level of risk.

Long-term investments are investment vehicles that are intended to be held for a longer period of time, typically more than 10 years. They may offer the potential for higher returns than short- or medium-term investments, but they also typically carry a higher level of risk. Long-term investments can be a good choice for investors who have a long investment time horizon and are willing to take on a higher level of risk in pursuit of higher returns.

Commodities like gold are great for portfolio diversificaiton

Comparing investments for a diverse portfolio

Now that we have an understanding of our financial goals and what we want out of a diverse portfolio as well as a good definition of risk level and time horizons, it’s time to look at some examples.

Below you will find a table. While looking at this table, please remember that:

Investment is risky by nature, there is no such thing as a risk-free investment and even the safest options still carry the potential to deteriorate and lose you money under the wrong conditions. Just because something is generally classified as low risk does not mean it actually is!

Additionally, the time horizon that you choose to hold onto an asset is completely determined by you, and you alone. This makes it hard to classify something as exclusively a short, medium or long-term investment.

This table is only here for educational purposes to give you a generalized overview of most of the different types of tables and their standard time horizon and risk level based on our generalized research.

Always, and I do mean always, do your due diligence before deciding to invest your money into anything!

With that in mind, here is our:

Investment Comparison Table

Now that you have seen the data in a table format, let’s get specific and more detailed with some of the examples and break them down into categories.

Grow your wealth with a diverse portfolio

How to build a diverse portfolio for short-term investing

5 examples of Low-risk short-term investments

Treasury bills: Treasury bills are short-term debt securities issued by the U.S. government. They offer a low level of risk and are considered to be one of the safest investments available.
Certificates of deposit (CDs): CDs are deposit accounts offered by banks and other financial institutions. They typically offer higher interest rates than savings accounts, but they also require you to keep your money on deposit for a set period of time.
Money market funds: Money market funds are low-risk investment vehicles that invest in short-term debt securities, such as government bonds and CDs. They offer a relatively high level of liquidity and typically have stable values.
Short-term bond funds: Short-term bond funds invest in a range of bonds with maturities of less than three years. They offer a higher level of income than money market funds, but they also typically carry more risk.
Dividend-paying stocks: Some stocks pay dividends on a regular basis, which can provide a source of income for investors. Dividend-paying stocks can be a good short-term investment if you’re looking for a relatively steady stream of income. However, the value of individual stocks can fluctuate, so they also carry some level of risk.

5 examples of Medium risk short-term investments

Intermediate-term bond funds: Intermediate-term bond funds invest in a range of bonds with maturities of three to 10 years. They offer higher yields than short-term bond funds, but they also typically carry more risk.
Diversified stock funds: Diversified stock funds invest in a range of different stocks, which can help to spread your risk and potentially maximize your returns. These funds can offer a convenient way to invest in the stock market without having to pick individual stocks.
Real estate investment trusts (REITs): REITs are companies that own and operate income-producing real estate properties. They are required to distribute at least 90% of their taxable income to shareholders, which can make them a good source of income. However, the value of REITs can fluctuate, so they also carry some level of risk.
Commodities: Investing in commodities, such as gold, silver, oil, or agricultural products, can provide exposure to the performance of the global economy. However, the prices of commodities can be volatile, so this type of investment carries a higher level of risk.
Peer-to-peer lending: Peer-to-peer lending platforms allow investors to lend money directly to borrowers, cutting out the traditional bank intermediary. This can provide a relatively high level of interest income, although it also carries more risk than some other types of investments.

5 examples of High-risk short-term investments

Emerging market stocks: Investing in stocks of companies based in emerging markets can provide the potential for significant growth, but it also carries a higher level of risk than investing in developed markets. Emerging markets can be subject to political instability, currency volatility, and other risks.
High-yield bonds: High-yield bonds, also known as junk bonds, are bonds issued by companies with a lower credit rating. They offer higher yields than investment-grade bonds, but they also carry a higher level of default risk.
Leveraged ETFs: Leveraged ETFs use financial derivatives and debt to amplify the returns of a particular market index or sector. They can offer the potential for higher returns, but they also carry a higher level of risk than non-leveraged ETFs.
Cryptocurrencies: Cryptocurrencies, such as Bitcoin and Ethereum, are digital assets that use cryptography to secure transactions and verify the transfer of ownership. They can offer the potential for significant appreciation in value, but they are also highly volatile and unregulated, so they carry a high level of risk.
Penny stocks: Penny stocks are stocks of small, often unproven companies that trade at a low price per share. They can offer the potential for significant gains, but they also carry a high level of risk, as many penny stocks are highly speculative and subject to manipulation.

How to build a diverse portfolio for medium-term investing

5 examples of Low-risk medium-term investments

Intermediate-term bond funds: Intermediate-term bond funds invest in a range of bonds with maturities of three to 10 years. They offer a higher level of income than short-term bond funds, but they also typically carry more risk.
Municipal bonds: Municipal bonds are debt securities issued by state and local governments. They offer a relatively low level of risk and are generally exempt from federal income taxes, making them a good choice for investors in high tax brackets.
Blue-chip stocks: Blue-chip stocks are the shares of well-established companies with a strong track record of growth and profitability. They can provide a relatively stable source of income and potential appreciation in value, but they also carry some level of risk.
Infrastructure funds: Infrastructure funds invest in assets such as roads, bridges, and utilities, which can provide a relatively stable source of income. However, these funds can also be subject to regulatory and political risks, so they carry some level of risk.
Investment-grade corporate bonds: Investment-grade corporate bonds are debt securities issued by companies with a high credit rating. They offer a higher level of income than most other low-risk investments, but they also carry some level of default risk.

5 examples of Medium risk medium-term investments

Money market funds: Money market funds are relatively low-risk investment vehicles that invest in short-term to medium-term debt securities, such as government bonds and CDs. They offer a relatively high level of liquidity and typically have stable values.
Diversified stock funds: Diversified stock funds invest in a range of different stocks, which can help to spread your risk and potentially maximize your returns. These funds can offer a convenient way to invest in the stock market without having to pick individual stocks.
International stocks: Investing in stocks of companies based in foreign countries can provide exposure to the growth potential of economies around the world. However, international stocks can be subject to currency fluctuations and other risks, so they carry a higher level of risk than domestic stocks.
Blue-chip stocks: Blue-chip stocks are the shares of well-established companies with a strong track record of growth and profitability. They can provide a relatively stable source of income and potential appreciation in value, but they also carry some level of risk.
Real estate investment trusts (REITs): REITs are companies that own and operate income-producing real estate properties. They are required to distribute at least 90% of their taxable income to shareholders, which can make them a good source of income. However, the value of REITs can fluctuate, so they also carry some level of risk.

5 examples of High-risk medium-term investments

Small-cap stocks: Small-cap stocks are the shares of small companies that have a market capitalization of less than $2 billion. These companies can offer the potential for significant growth, but they also tend to be more volatile and less established than larger companies, so they carry a higher level of risk.
Growth stocks: Growth stocks are the shares of companies that are expected to grow at an above-average rate, compared to the overall market. They can offer the potential for significant appreciation in value, but they also carry a higher level of risk than value stocks or blue-chip stocks.
International stocks: Investing in stocks of companies based in foreign countries can provide exposure to the growth potential of economies around the world. However, international stocks can be subject to currency fluctuations and other risks, so they carry a higher level of risk than domestic stocks.
Leveraged ETFs: Leveraged ETFs use financial derivatives and debt to amplify the returns of a particular market index or sector. They can offer the potential for higher returns, but they also carry a higher level of risk than non-leveraged ETFs.
Real estate: Investing in real estate can provide a potential source of income through rental income and the potential for appreciation in value. However, real estate investments can be illiquid and subject to market fluctuations, so they carry a higher level of risk.

How to build a diverse portfolio for long-term investing

5 examples of Low-risk long-term investments

Treasury bonds: Treasury bonds are long-term debt securities issued by the U.S. government. They offer a relatively low level of risk and are considered to be one of the safest investments available.
Investment-grade corporate bonds: Investment-grade corporate bonds are debt securities issued by companies with a high credit rating. They offer a higher level of income than most other low-risk investments, but they also carry some level of default risk.
High-quality dividend-paying stocks: Some stocks pay dividends on a regular basis, which can provide a source of income for investors. High-quality dividend-paying stocks can be a good long-term investment if you’re looking for a relatively stable source of income and potential appreciation in value. However, the value of individual stocks can fluctuate, so they also carry some level of risk.
Real estate investment trusts (REITs): REITs are companies that own and operate income-producing real estate properties. They are required to distribute at least 90% of their taxable income to shareholders, which can make them a good source of income. However, the value of REITs can fluctuate, so they also carry some level of risk.
Infrastructure funds: Infrastructure funds invest in assets such as roads, bridges, and utilities, which can provide a relatively stable source of income. However, these funds can also be subject to regulatory and political risks, so they carry some level of risk.

5 examples of Medium-risk long-term investments

Diversified stock funds: Diversified stock funds invest in a range of different stocks, which can help to spread your risk and potentially maximize your returns. These funds can offer a convenient way to invest in the stock market without having to pick individual stocks.
Growth stocks: Growth stocks are the shares of companies that are expected to grow at an above-average rate, compared to the overall market. They can offer the potential for significant appreciation in value, but they also carry a higher level of risk than value stocks or blue-chip stocks.
International stocks: Investing in stocks of companies based in foreign countries can provide exposure to the growth potential of economies around the world. However, international stocks can be subject to currency fluctuations and other risks, so they carry a higher level of risk than domestic stocks.
Small-cap stocks: Small-cap stocks are the shares of small companies that have a market capitalization of less than $2 billion. These companies can offer the potential for significant growth, but they also tend to be more volatile and less established than larger companies, so they carry a higher level of risk.
Real estate: Investing in real estate can provide a potential source of income through rental income and the potential for appreciation in value. However, real estate investments can be illiquid and subject to market fluctuations, so they carry a higher level of risk.

5 examples of High-risk long-term investments

Emerging market stocks: Investing in stocks of companies based in emerging markets can provide the potential for significant growth, but it also carries a higher level of risk than investing in developed markets. Emerging markets can be subject to political instability, currency volatility, and other risks.
Collectibles: Investing in collectibles, such as art, stamps, or rare coins, can provide the potential for significant appreciation in value. However, the value of collectibles can be difficult to determine and they can be subject to market fluctuations, so they carry a high level of risk.
Leveraged ETFs: Leveraged ETFs use financial derivatives and debt to amplify the returns of a particular market index or sector. They can offer the potential for higher returns, but they also carry a higher level of risk than non-leveraged ETFs.
Angel investing: Angel investing involves providing capital to early-stage companies in exchange for an ownership stake. It can offer the potential for significant returns, but it also carries a high level of risk, as many start-up companies fail.
Private equity: Private equity funds invest in established companies that are not publicly traded, often with the goal of improving their operations and selling them for a profit.

Stocks are a good portfolio diversification

What is the best thing to invest into?

We have looked at a lot of options, however, this is nothing that pays off more than the investment, of investing into yourself!

Investing in yourself can be one of the best investments you can make because it can help you build the skills, knowledge, and experience that you need to succeed in your career and achieve your personal and financial goals.

This can include investing in your education, training, and professional development, as well as taking care of your physical and mental health. By investing in yourself, you can improve your earning potential and increase your ability to create wealth over the long term. Additionally, investing in yourself can provide intangible benefits, such as increased confidence and a sense of personal fulfillment.

You now have the foundational knowledge in place to make the right decision and build a solid, diverse portfolio that will allow your wealth to grow even in volatile market conditions!

Be sure to check out our sections on building your business and growing your wealth and check out these other foundational finance-related articles and get keep growing your knowledge!

You’ve got this!