Most investors are aware that diversifying their investments is crucial to avoid major losses. New investors know that they don’t want their money to go to waste so they need to do everything they can to protect it.
Diversification has been the subject of many books and chapters in investing magazines, online articles, and books. These sources usually focus on diversifying your money between different types of investments. A large-cap mutual fund, a fund or ETF that invests in energy and possibly a fund that invests in a sector fund.
Diversification is possible in many other ways that are often overlooked.
Strategies – Your actual investment strategies can be used to diversify. Diversification is better than putting all your eggs and your money in one basket. Using a variety strategy can help you protect your investments and grow your portfolio in almost any economic environment.
You can keep up with market changes by having two to three strategies for each type. If you invest in specific sectors, you will need two to three different strategies. They can be different depending on the type of relative strength analysis used (e.g. These can be based on relative strength analysis (e.g., alpha, relative strength momentum, or return).
It is easy to see a performance chart that shows all your strategies. This does not include all your investment strategies. Sectors, large cap funds and energy ETFs. This chart can be viewed every other week to quickly determine which strategy you should use.
Diversification can also be achieved by separating your strategies according to your buy-sell rules. One strategy might have a short market exit signal that responds quickly to market fluctuations. Another strategy could have a longer response time that allows for market fluctuations without affecting your position. Or, perhaps it is set to be a long-term holding and only reacts to prolonged market crashes. A combined strategy chart can help you determine which strategy is best for investing.
The third diversification technique is similar in that it allows you to see the strategies for one investment type or group. This involves comparing the overall performance for each investment category (large-cap fund or energy ETF), To determine if any one or more groups is not giving you solid gains, You may find a market that is underperforming in one or more of your industry sectors. This is why you should follow six to eight investment groups to capitalize on the best performers at any given moment.
It takes only a few seconds to look at the equity curves of your groups and strategies or a combination chart. This will quickly reveal which ones are underperforming.
Diversifying on different types of analysis can help you maximize your investment growth potential.
- 2 – 3 strategies should be used for each type of investment.
- Compare strategies by taking a quick look at a combo chart
- To take advantage of various types of markets (flat or volatile, steady upwards, etc.), you can vary your strategy buy-sell rules
- To focus on the growing investment groups, compare investment groups
Diversification is key to growing your portfolio and safe investing. It goes beyond buying stocks.
