How to build a diversified portfolio in 6 simple steps?

Learn how to build a diversified investment portfolio in 6 simple steps and reduce risks while increasing your long-term returns.

Understand how to build an attractive portfolio

(Image: Disclousure/Reproduction Of Google Images)

Investing is one of the smartest ways to build wealth over time. But to reduce risk and increase your chances of good returns, it’s essential to build a diversified portfolio. The good news is that you don’t have to be a financial expert to do this.

With planning and a few simple steps, you can build a balanced portfolio that meets your financial goals, even if you’re just starting out.

But how do you do this? Here are 6 simple steps to building a diversified portfolio while living in the United States.

1. Define your financial goals

Before choosing where to invest, it is essential to understand what you want to achieve with these investments.

Are you thinking about retirement? Do you want to buy a house? Do you want to create a fund for your children’s education or just make your money yield better than in a savings account?

Setting clear goals helps you determine how much risk you can take and what the investment term will be. For example, if your goal is long-term (such as retirement), you can accept more risk now to seek higher returns in the future.

2. Know your investor profile

In the U.S., there are many types of investments, from the safest to the riskiest. That’s why understanding your risk tolerance is important.

Conservative: prefers safety, even if the returns are smaller;
Moderate: accepts some risk to try to earn a little more;
Aggressive: seeks high returns and is willing to face market fluctuations.

Many investment platforms like Fidelity, Vanguard or Charles Schwab offer profile questionnaires to help you find out where you fit in.

3. Choose a good brokerage (broker)

To invest in the United States, you’ll need an account with a brokerage firm. Fortunately, there are several options that offer access to stocks, funds, ETFs and other assets with low or even zero fees.

Some of the most popular brokerages are:

Robinhood: zero commission fees and easy to use;
Fidelity: excellent support and diverse investment options;
Charles Schwab: ideal for those looking for support and educational materials;
Vanguard: a reference in low-cost index funds.

Check if the brokerage has a user-friendly interface and offers diversification and analysis tools.

4. Invest in different asset classes

The secret of diversification is to spread your investments across different types of assets. This protects your portfolio from market swings. Here are some examples:

Stocks: offer higher return potential, but also higher risk;
Index funds (ETFs): baskets of stocks that follow a sector or market, with low cost;
Government bonds (Treasuries): ideal to bring stability and safety;
Real Estate Investment Trusts (REITs): allow you to invest in real estate without buying a property;
Cryptocurrencies: a risky option, but can make sense with a small percentage of the portfolio.

Diversification can also be done across different sectors (technology, healthcare, energy) and different regions.

5. Rebalance your portfolio periodically

Over time, some investments will grow more than others, which can unbalance the original proportions of your portfolio. That’s why it’s important to review and rebalance your assets periodically, usually every 6 months or once a year.

Rebalancing consists of selling a bit of what has grown a lot and buying more of what has lagged behind, keeping the balance according to your profile and goals.

Example: if your target was 60% in stocks and 40% in bonds, but now you have 70% in stocks, it’s time to sell a bit and reallocate the resources.

6. Stay focused on the long term

The financial market has its ups and downs. News, crises or political changes can affect investments in the short term. But those who have a diversified portfolio and patience for the long term tend to see good results.

Avoid making emotional decisions or reacting to every market fluctuation. Instead, trust your strategy, monitor your goals and keep learning

Building a diversified portfolio is simpler than it seems, and it’s one of the best ways to protect your wealth and achieve your dreams.

With these 6 steps, you’ll be on the right path to investing safely and wisely, taking advantage of the best the U.S. financial market has to offer. Remember: start with what you have, invest consistently, and always think long term.