Diversification is one of the easiest and most effective ways to increase your portfolio to get maximum returns with low risk. A diversified portfolio will contain several different securities with market sectors. A good portfolio will consist of large and small caps stocks, bonds, international stocks, commodities, investments like dividend-paying stocks. Diversified portfolios need a high amount of money to purchase different types of investments. Investment portfolios can be diversified in the following ways.
- Zero commission broker
- No load Mutual fund
- Less cost Exchange traded fund
- Purchase fractional shares
- Index fund
- Robotic advisor
1. Zero commission broker
There are recent trends in investments that are available to the investors among them is zero commission broker. In the UAE, Sarwa has announced plans to launch a zero commission broker in March. Customers can buy any stocks and exchange traded funds. Investors can trade on global stocks through the zero commission broker. You need some capital to make an investment and make a portfolio. By using a zero commission broker you can avoid annual fees and save money on your trade.
There are some zero commission trading which have attracted many young investors into investment. These apps are Sarwa, Robinhood and eToro which are becoming more popular in the investment world.
2. No load Mutual fund
Prior to the era of zero commission trading, no load mutual funds were the most happening less cost investment. No load mutual funds were used to diversify the portfolio. The strength of mutual funds is diversification. Investors invest in simple broad market mutual funds. They provide quick diversification with one individual investment. With no load mutual fund you can diversify all your investments or just a particular type of investment. With no load mutual fund you get the benefit of diversification without paying any commission or fees to anyone.
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3. Less cost Exchange traded Fund
When you are looking to diversify your investment you should consider low cost exchange traded funds. In zero commission brokers, there might be hidden costs you should get to know about before you are going for diversification. There is one option through which you can look out is low cost ETFs. With the low cost ETFs you can own any investments which include global stocks, micro cap stocks, investment commodities, real estate investment. To fill your investment gaps you can add these ETFs to your portfolio. Many low cost Exchange traded funds charge an annual amount which is very less that makes it a good source of investment.
4. Purchase fractional shares
Investors can purchase fractional shares to diversify their portfolio with less money. All it takes is to invest in the fractional shares is the amount that you are willing. The share price of the company that you buy does not matter when you are buying fractional shares. Many investors take time to save money and buy shares. When you buy fractional shares you can invest whatever available stock you are willing to invest.
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5. Index Funds
The index funds are similar to any other equity funds. You can own the entire index and pay for internal expenses. It is one of those funds which requires very less cost of investment. The low cost is due to the fact that it is monitored and managed passively. When compared to active investments, index funds give lower turnover. This is the reason why it is considered as a low cost investment and a good option for the investors.
6. Robotic advisor
The Robo advisor which has been introduced is a boon for the investors. The system follows the algorithm that will choose the best outputs for the investors.
The investors will give inputs and the robo advisor will calculate the risk and based on the investors financial goal it provides advice. Many financial advisors charge heavily for the financial advisory services. You have to spend little less comparatively for the Robo advisory services. Without spending a lot of money you can diversify your portfolio with a robotic advisor.
Take away
When you are into diversification of your portfolio investments you are reducing your risk of loss. Diversification not only reduces the risk of loss but also safeguards your investments. When you spend a lot of time in investments and do analysis you can master the investment world. Warren buffet the investor tycoon has stated that diversification is ‘protection against ignorance’ making it unnecessary when you know precisely what you are doing.
About the author
Vinay Kumar Goguru is a finance professional with more than 8 years of diverse experience as a researcher, instructor and Industry work experience with both public and private entities. Prior to MyMoneySouq, he spent 6 years in Berkadia, It's a commercial mortgage banking company. He has a "Doctoral Degree in Commerce" and two master's degrees with a specialization in Finance, one as Master of Commerce and other as Master of Business Administration. He has written several articles on personal finance, published by different International journals. He loves traveling, reading and writing is his passion. He has a dream of writing a book on his favorite finance topics.
