I’m sure you’ve heard how important it is to keep a diverse financial portfolio. There are many reasons for this not the least of which is spreading out the risks as well as the rewards so that one bad day on the market doesn’t do in your entire financial future. Many people have learned along the way that the price to be paid for failing to diversify can be very high indeed. If you aren’t prepared to pay that price then the solution is probably much simpler than you may realize…

1) Remember that there is no perfect solution, and there are no completely “safe” investments. Diversification is an attempt to manage risk by spreading out the risk among different assets.

2) The services of a good financial advisor are important. Their job is learning about everything having to do with personal financial management. They can answer your questions and give you sound advice; as long as you pick a good one.

3) You’ll want to divide your stock holdings among several different sectors. Having too much money in a single industry, such as healthcare or technology or real estate, could be disastrous if something bad happens to that group of stocks.

4) Most people will tell you to buy mutual funds. However, mutual funds have fees, often on average do no better than the indexes, and are harder to get in and out of. Though they do sometimes have tax advantages. Talk to you your financial advisor about holding ETFs instead. ETFs trade like stocks but are attached to specific indexes instead. For example, if you think biotech is an industry with good long term prospects, there are several biotech ETFs that track the movement of 20+ stocks all in one asset.

5) Beyond stocks, it’s a good idea to hold CDs, and bonds as “safer” investments, and many people recommend at least 5% of your portfolio go into precious metal related investments. Since early 2000, the price of gold has gone up over 400%.

6) It is possible to be too diversified however. This is where fundamental and technical analysis comes in learning about Sector Rotation techniques can seriously improve your portfolio.