Make Money by Adding Diversity to Your Portfolio

Adding diversity to your stock portfolio has proven to be a way to add a significant amount of wealth to anybodies life. The theories behind it are simple, but just how would one go about implementing a very diverse portfolio is a slightly more complex matter. With too much diversity you will never be able to realize any gains due to the daily fluctuations of the great range of stocks an extremely diverse portfolio may have. Whereas, with too little diversity, the entire concept of diversity gets thrown off. When you decide to add diversity to your portfolio it is best to study a few sectors that are expected to do well over the next few months due to world events. At the time of this articles writing the dollar is weak and oil is rising. So it might be a good idea to focus on foreign stocks, oil companies, or even gold companies. As a side note I have always found it far more profitable to invest in companies that produce in gold or oil as opposed to gold or oil itself. The fluctuations of these companies will correlate directly with the price of the good, but sometimes other events will also boost profits.

Famed invest Peter Fisher once warned investors not to spread their eggs out into too many baskets at once, and that it was better to put most of your eggs into a few baskets and then watch those baskets very carefully. I have found that five different sectors seems to be a good number of different markets to be involved in. This could eventually grow into a few companies of each sector, but a good starting point would be owning stock in five different companies. As a side note, at this time it is probably important to say that if you are investing a relatively small amount of money (under 2,000) or are new to the stock market, it may be a better idea just to wet your feet a little bit with one large cap stock. This is partially due to the commission costs of purchasing multiple stocks, and partially due to the relative simplicity of purchasing a large cap stock.

Over time it is a great idea to purchase more of stocks that have been treating you well on their down days, and to slowly expand your portfolio by purchasing more stock while still staying in the five sectors. Eventually, world events may change to better support other sectors, and then it would be time to completely cut a sector from your holdings and invest in great companies of another sector.