There’s a reason why investors are urged to diversify their portfolios rather than relying heavily on a handful of stocks or one or two market segments. A wide range of stocks could be the key to growing wealth over many years. And just as important, having a diverse portfolio could be your ticket out of a stock market crash unscathed.
There are different ways to go out and diversify. And if you have a lot of money at your disposal, you can just load up a whole bunch of different actions and call it a day. But if the money is more limited, here are some options to consider.
1. Buy fractional shares
There may be a specific stock that would really lend you a more diverse portfolio. But what if its share price is above what you can afford? Where and if you can allow yourself a share or two, but that would be at the expense of being able to add other companies to your personal investment portfolio?
If so, it is worth considering fractional shares. Not all brokerage accounts offer them, but a growing number are making them available.
Fractions of shares allow you to buy part of a share instead of a full share. Then when that stock gains or loses value, you profit or suffer losses proportionately.
Suppose there is a company with a stock price of $ 500 and you only have $ 250 to invest. You can buy half a share of that share or a quarter of that share, and then invest your remaining $ 125 elsewhere. Taking advantage of fractional shares could make it easier to add more individual companies to your portfolio in less time.
2. Stock up on broad market index funds
Index funds are set up to match the performance of the benchmarks to which they are linked. Because they are passively managed, they generally don’t impose the high fees that you typically find with actively managed mutual funds. And if you focus on S&P 500 index funds, you will get instant diversification in your portfolio without having to spin your wheels looking for different companies.
If you are not familiar with the S&P 500, it is an index that consists of the 500 largest publicly traded companies. And it’s generally seen as a measure of the performance of the stock market as a whole.
You don’t need to add S&P 500 index funds to your portfolio, as there are funds that track other stock indexes. But if your goal is to diversify, it’s worth focusing on index funds that really follow the broad market.
Don’t sweat your lack of funds
Not everyone has thousands of dollars to invest on a regular basis. And the good news is, you don’t need a ton of cash to build a healthy investment mix. If you focus on fractions of stocks and broad market index funds, you will put yourself in a strong position to grow your portfolio, while weathering any storm that comes your way.