Diversification is key to reducing the volatility and risk in your investment portfolio while increasing returns. If one type of asset fails, others will perform well and offset your losses. Online investments offer ample opportunities for portfolio diversification.
Bonds are similar to loans. When you purchase a bond, you’re lending money to a government, company or other entity. In exchange, the issuer agrees to pay regular interest or coupon payments.
Bonds are a relatively safe investment. Prices don’t typically fluctuate as much as stock prices, and some bonds provide income stability. However, they do not provide high long-term investment returns compared to stocks. Bond prices also fall when interest rates rise.
2. ETFs and Mutual Funds
Mutual funds and exchange-traded funds, or ETFs, are also great ways to diversify your investment portfolio.
A mutual fund combines your money with money from other investors, and those funds are invested in a variety of individual assets, such as bonds, stocks, real estate and currencies.
An ETF is a collection of securities that tracks as an underlying index. ETFs are traded on an exchange, and the price of shares will change throughout the day.
With forex trading, investors capitalize on relative movements of international currencies. Although complex and risky, forex trading can be lucrative when strategies are mastered.
Forex is an accessible market, and you can trade 24 hours a day, five days a week. Due to its high liquidity, the forex market may offer faster returns. However, forex can be volatile and you may experience significant losses as a result.
A futures contract is an agreement to buy or sell a security, commodity or financial instrument at a future date and at a specific price. Investors can speculate on commodities, Treasury bonds, stocks, global currencies and more.
Because futures are leveraged, you can invest just a small amount of the contract’s value. Due to their high liquidity, buy and sell orders can be placed quickly.
Options are contracts that give you the right to buy or sell a set number of shares of a security at a determined price within a set time period. Underlying securities can range from currency to stocks, funds or any other type of investment.
While they can offer lucrative returns, options are complicated and best suited for advanced investors.
6. International Funds
International funds allow for broad diversification without the complications of investing in individual foreign stocks and bonds. There are both global and regional options.
The primary benefit to investing in international funds is that you can spread your risk over different markets for less volatility.