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It’s a smart move that could help you gain wealth.
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Let’s face it — 2022 was a tough year for investors. Many people are now seeing losses in their brokerage accounts and IRAs, and stock market volatility is largely to blame.
But some people lost money in the stock market last year due to not having diverse-enough portfolios. The tech sector, for example, took a huge hit in 2022. Investors who had most of their assets in tech are probably now not so happy with how their brokerage account balances are looking.
If you’re not thrilled with how your portfolio did in 2022, then you may be looking to make some changes in 2022. And that’s a smart thing. But one change you may want to focus on is diversifying your holdings, and there are a couple of different ways you can go about that.
It pays to branch out
A diverse mix of investments in your portfolio can do several good things for you. First, it can set the stage for growing long-term wealth. Secondly, it can, to some degree, help protect you from losses.
According to New York Life’s latest Wealth Watch survey, among investors who are planning to make changes to their investment portfolio or strategy in 2023, a good 39% plan to focus on diversifying. And doing the same could get you much closer to your financial goals.
Now, when it comes to diversification, you have a few options. The first is to simply load up on stocks across a wider range of market segments. So, let’s say that as of now, you own a bunch of tech stocks, energy stocks, and bank stocks. With that setup, you’re really only hitting three of many stock market sectors. So in that case, you may want to branch out and start buying some auto stocks, healthcare stocks, retail stocks, and real estate stocks.
If the idea of doing that seems too time-consuming, another option is to simply load your portfolio with broad market ETFs, or exchange-traded funds. When you buy shares of an ETF, you’re effectively getting to invest in a bunch of different companies without having to go out and purchase their shares individually.
ETFs come in different varieties. It’s possible to buy ETF shares that focus on a single market segment. But if your goal is to diversify your portfolio, then you’ll want to focus on total stock market ETFs or S&P 500 ETFs, as those give you nice exposure to the broad market.
Fractional investing can help you diversify
You might assume that it takes a lot of money to build a diversified portfolio. But actually, these days, it really doesn’t have to. That’s because most major brokerage accounts let you buy shares of stocks and ETFs on a fractional basis. What this means is that if you want to own shares of a company that cost $200 apiece, but you only have $50 to invest with, you can buy a quarter of a share instead.
Fractional investing makes it easier to branch out on a budget. So if your brokerage account doesn’t offer this option, you may want to move your money over to one that does.
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