6 Signs Your Money is Properly Diversified

February 23, 2017

6 signs your money is properly diversified

For most investors, you know that having a diversified portfolio is a best practice you ought to be following. But many people think they’re diversified when they’re really not.

Diversification simply means that you hold a variety of asset classes in your investment portfolio. The reason this is a good idea is so that you minimize your risk and maximize your potential for returns. Holding a mix of investment types has historically smoothed the investor’s ride and allows you to better stabilize your portfolio against sharply negative and positive market performance, i.e. volatility.

Whether you are managing your finances on your own right now or working with a financial professional, here are six signs that your money is properly diversified and you’re on the right track to reach your financial future.

  1. You don’t worry about short-term performance.

When you’re properly invested with a diversified portfolio, you’re not worried about what the market does on any particular day. For you, daily, weekly, or monthly market fluctuations is just news, nothing that keeps you up at night.

  1. You don’t chase trends.

Sure, it can be easy to get caught up in hunting around for the next Amazon or other big investment opportunity, but you’re not feeling the need to chase anything. Because you have a long-term investment strategy, chances are you are less concerned with finding the next “hot” opportunity and feel secure that your current investment strategy will provide for what you need.

  1. You’re invested in the Big 4 asset classes.

Stocks, bonds, real estate, and cash – these are the staples that every well-diversified investment portfolio is comprised of. Just as a refresher:

  • Stocks: share in the ownership of a company and its profits
  • Bonds: you are loaning money to a company or government to be paid back with interest
  • Real estate: you purchase property that you believe will appreciate in value over time
  • Cash: Short-term, liquid investment that provides returns in the form of interest payments, such as money market funds and certificates of deposit
  1. You leverage ETFs.

ETFs (Exchange Traded Funds) are effective tools in diversifying your investment portfolio, because they offer returns at a minimal cost to the investor. Just one word of caution: just because they offer some diversification does not mean that owning an ETF ensures you are well-diversified. This is because some ETFs may be concentrated in one type of asset, so you should understand the underlying assets that comprise an ETF before you invest.

  1. You understand your underlying investments.

Having redundancies in your investment portfolio can leave you overconcentrated. However, it is also possible to over-diversify certain assets classes which is not a good idea either. There is usually no reason that your investment portfolio should hold several mutual funds that invest in the exact same type of investments. If you do, you are technically diversified, but you are unnecessarily duplicating efforts. If you’re not sure, there is no shame in asking a financial advisor about your investments.

  1. Your asset allocation is based on your goals, age, and risk tolerance.

Most telling that your investment portfolio is properly diversified is that it isn’t based on a whim. Your investment portfolio ought to be based on your specific financial goals, your age and years till expected retirement, and your personal tolerance for risk. Given these important variables, the investments you hold will align with your needs and flex over time. When you are 20 years old, proper diversification for you will look much different than when you are 50 years old. The allocation within the major asset classes will adjust as part of your long-term investment strategy and is a hallmark sign of proper diversification.


What questions, comments or concerns do you have over the subject of diversification? The bottom line is that your investment strategy does not need to be complicated to be effective. In fact, simple can often be most effective in helping you reach your financial goals. Never hesitate to ask a financial professional any question you have about your investments. Your continued education and understanding of your personal finances will only help you continue to make smart money decisions for you and your family.



Most Recent Episodes

What I Learned From Being BROKE!!! (And Why I Wouldn’t Change It)

No one disputes the fact that being broke isn’t great. We want to spread the word that no matter where you came from, you can build wealth. In this episode, Brian and Bo share personal stories about their journey to wealth and lessons they learned along the way....

Top 10 Mind-Blowing Money Stats (2023 Edition)

These 10 money stats will blow your mind! We’ll discuss the unbelievable amount of money Americans save, when most reach millionaire status, and how many Americans carry a credit card balance. Research and resources from this episode: Most Americans don't have enough...

Wealth Multiplier Revealed: The Magic of Compound Interest!

There’s a reason why Albert Einstein called compounding interest the eighth wonder of the world! Do you know exactly how it works and how much your dollars could turn into by retirement? The Money Guy Wealth Multiplier can show anyone just how powerful every dollar...

From $0 to Millionaire in 10 Years (Is it Possible?)

How can you become a millionaire in 10 years or less? We’ll discuss common ways we see millionaires build wealth quickly, including through real estate, entrepreneurship, and the stock market. Discover how real wealth is built and why building wealth quickly may not...

Financial Advisors React to INFURIATING Money Advice on TikTok!

Brian and Bo are BACK to react to some more TERRIBLE financial TikTok advice! Join us as we take a look at some of the worst financial advice on the platform and tell you what to actually focus on in your own financial life. Enjoy the Show? Sign up for the Financial...

Investing Showdown: Dollar Cost Averaging vs. Lump Sum!

It’s a debate as old as time: what’s better, dollar cost averaging or lump sum investing? In this episode, we’ll cover the nuances and pros and cons of both, including in-depth case studies comparing investors at different times. Research and resources from this...

Is Inflation Really Ruining Your Finances? (You Won’t Like the Answer)

Inflation has changed our daily living expenses dramatically over the last few years. While we can’t control all of our expenses, there are many things in your control that can help you become a Financial Mutant and build wealth better than your peers. Enjoy the Show?...

Are $1,000 Car Payments Becoming the New Norm?!

New data shows more Americans than ever have car payments over $1,000. Is this becoming the new normal? How much could having a car payment of $1,000 be costing you for retirement? For more information, check out our Car Buying Checklist!