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How does diversification help when the stock market is down?

How does diversification help when the stock market is down?

When you go to a job interview, you might often hear, what skills do you feel you possess the most? You may answer with one or two skills you feel strongest at. Unfortunately, something similar happens when it comes to investing. Often investors feel biased towards a couple of sectors they feel strongest at and forget about the other 11 different market sectors or assets that could help diversify their portfolio.   

In a booming market economy, investors will likely see little downside to this strategy for a short period, and the value of shares might sometimes surpass the price they were initially bought at. So why should you bother reading and researching about other market sectors like materials if, for example, tech news are everywhere, Apple launches a product every so often, and Elon Musk tweets almost every day? 

Because the performance of a single stock, to some extent,  is tied to the performance of the sector it belongs to. In other words, it’s risky.

Is your portfolio diversified enough? Find out by connecting your broker and calculating your front score. 

 What is diversification?

Simply put, diversification is an investment strategy that packs a single portfolio with stocks from all different sectors. For example, a diverse portfolio might have some biotech stocks, some tech, energy, etc. The whole idea behind diversification is to yield higher returns and minimize the amount of risk investors will take on.

How can I diversify my portfolio? 

Disciplined investing and diversification go hand in hand. The stock market is dynamic, with abrupt ups and downs. When one industry is thriving, another one is declining. Learn more about diversification on Front. Connect your broker, and we’ll suggest how to diversify your portfolio with key stocks from each sector.

What benefits do I get if I connect my broker to Front?

You could connect your brokerage accounts and see your brokers like Robinhood, and Schwab in one place. This gives you a holistic view of all your investments. You might have a healthy and well-diversified portfolio on Schwab, but your recently opened Robinhood account might not have the same luck. Front could help you understand the big picture of all your assets and provide insights on how to truly diversify your portfolio. 

You will also get an assessment (AKA Front Score) of your portfolio based on company financials, stock performance, risk balance, among other factors. The Front Score rates your portfolio with a score between 300 to 850. A score above 700 is considered good/excellent (Larry Ellison’s Front Score is 718).

Do you want to get a score for your portfolio and get insights into diversifying more? Connect your broker to find out.

Keep in mind: When you’re new to investing, it is important to seek the consultation of an expert. Never place a trade without access to the right information and resources that will help you make the best decisions possible with your money.

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