Diversification Strategies for a Resilient Share Market Portfolio

Putting all your money into one kind of investment can be risky. This is where diversification comes in handy. Spreading your money over a variety of investment kinds is known as diversification. It’s a wise strategy for controlling risk and maybe raising rewards over time. 

With the help of diversification, you’re spreading them out, which can help protect your money if one investment doesn’t do well. This article will list some of the effective diversification strategies to practice trade in the share market. 

List of Diversification Strategies 

Let’s look at some ways you can diversify your share market portfolio to make it more resilient.

1. Invest in Different Sectors

One of the easiest ways to diversify is by investing in companies from different sectors. Sectors are groups of similar businesses. For example, technology, healthcare, and finance are all different sectors.

Well, different sectors often perform differently at various times. When one sector is struggling, another might be doing well. By spreading your investments across sectors, you can balance out these ups and downs.

Many people start their online share trading journey by focusing on one or two sectors they know well. But as you gain more experience with your trading account, it’s wise to branch out. This doesn’t mean you need to become an expert in every industry. Instead, you can start by learning about a new sector each month and considering whether it fits into your investment strategy.

2. Mix Different Types of Stocks

Not all stocks are the same. Some are from big, well-known companies (called large-cap stocks), while others are from smaller, growing companies (small-cap stocks). Some stocks pay regular dividends, while others focus on growth.

A good mix might include:

• Large-cap stocks for stability
• Small-cap stocks for growth potential
• Dividend-paying stocks for regular income

When you’re doing online share trading, it’s easy to get caught up in the excitement of fast-growing companies. But remember, a mix of different types of stocks can help balance your portfolio.

3. Consider Bonds

Stocks and bonds are not the same thing. Lending money to a business or the government is what happens when you purchase a bond. They pledge to reimburse you with interest in exchange.

Bonds can add stability to your portfolio. They often don’t go up and down in value as much as stocks do. This can help smooth out the overall performance of your investments.

Many trading account platforms now offer easy ways to invest in bonds alongside stocks. This makes it simpler to add this important element to your portfolio.

4. Look Beyond Your Home Country

While it’s natural to focus on companies you know, investing only in your home country limits your opportunities. Consider adding some international stocks or funds to your portfolio.

Different countries’ economies often perform differently at various times. By investing internationally, you can take advantage of growth in other parts of the world.

When using your online share trading platform, look for options to invest in international markets. Many platforms now offer this feature, making it easier than ever to diversify globally.

5. Don’t Forget About Cash

Keeping some of your money in cash or cash equivalents (like short-term government securities) is also part of a diversified strategy. This gives you a safety net and the ability to take advantage of new opportunities when they arise.

Most trading account providers offer money market funds or similar options. These allow you to keep some of your investment money in cash-like investments that earn a bit of interest while staying very safe and easy to access.

6. Consider Index Funds or ETFs

Index funds and Exchange Traded Funds (ETFs) are investment vehicles that track a specific market index. These can be an excellent way to diversify, as they automatically spread your investment across many different stocks.

For example, an index fund that tracks the BSE Sensex would invest in all 30 companies in that index. This gives you instant diversification across some of India’s largest companies.

Many online share trading platforms offer a wide range of index funds and ETFs. These can be a great option for beginners who want diversification without having to pick individual stocks.

7. Rebalance Regularly

Certain investments will increase in value more quickly than others over time. This can throw your carefully planned mix out of balance. Rebalancing means adjusting your investments back to your target mix.

For example, if you decided to have 60% in stocks and 40% in bonds, but after a year of growth, you find you now have 70% in stocks and 30% in bonds, you might sell some stocks and buy some bonds to get back to your original 60/40 split.

Most trading account platforms have tools to help you see your current asset allocation and make rebalancing easier. Some even offer automatic rebalancing features.

Conclusion

For a reliable share market app to implement these diversification strategies, consider HDFC SKY. It allows you to buy stocks in curated baskets, saving time and simplifying diversification. With tools to help analyze and manage your portfolio, you can start small, learn as you go, and build a diversified portfolio that matches your goals and risk tolerance.