Diversification

Written by 
Polina Medianina
/
October 8, 2021

Answer: Samsung

Hover your cursor over the buildings and look at the connections between the companies
⬇️

how to diversify investment portfolio correctly photo
Table of contents

Now that you know how to analyze a stock, let’s talk about risk management.‍

We have the best free tool to diversify your portfolio

Try GainyTry Gainy
There is a saying
Don't put all your eggs in one basket.

It turns out to be the most important investment principle. It means that you shouldn't invest all your money in just one asset. If this basket loses value, your whole capital will too.  

The 8 essential questions to ask yourself for good diversification.

First step: DIVERSIFICATION ALL AROUND

different stocks socks photo

1. Do you have a bias towards one instrument? 

For example, you have a portfolio of stocks and nothing else. Add the missing elements: funds, bonds and precious metals. 

correct diversification of portfolio by assets photo

Not good: an all-stock portfolio.

Good: stocks and ETFs (even a Gold ETF)

2. Do you have a bias towards the IT sector? Or financial? 

Make sure you cover at least 5 different industries. 

correct diversification of portfolio by industry photo
collections of stocks photo

3. Do you have geographic diversity in terms of assets? 

For example, the best part of our collections is that we offer a wide range of companies from different countries. Here you can find not only American but also Chinese, Brazilian, Indonesian, European companies, among others.

stocks from different countries photo

Second step: BALANCE THE RISKS

balance postions in portfolio photo

4. Do you have balance in positions? 

The perfect scenario is if you have stocks with the same total values. Otherwise, there is a risk that your one expensive $3,500 stock in Amazon could pull down an entire portfolio of $100 in 10 other assets.

Imagine you have one Google share which costs $2,800, one Microsoft share at $179 and one Intel share at $52. 

The Google stock drops 2%, the other two grow 10%. Looks good on paper, because 5 is more than 2, right?

But in reality, 2% of Google is $56.

10% of Microsoft and Intel is $18 and $5 respectively. 

So you are at a loss of $33!

5. Do you have free cash so you’re able to buy on drawdowns and to average positions?

It’s considered good practice to keep 10-15% of funds in cash, but if you sense the RISK ON situation on the market (like now) you can increase the share of free cash up to 50%. 

6. Do you have price targets for each stock? How much growth do you want to achieve as a result?

To avoid emotional swings, set targets for each stock. So that you don’t get nervous when you see +13% on some stock because you know that you expect +15%. Execute these targets and don’t regret that you sold them too early. It’s better to underearn than to lose. 

7. What loss are you willing to suffer on an asset before you sell?

The same principle as in the previous point. Set limits to your losses. Because if the stock is falling, then it’s worth selling now and maybe buying it cheaper. Books say to put stop-loss at -2%, but some stocks can be so volatile that they swing +/- 2% a day. So build the individual stop-loss on each stock.

WHERE TO FIND SO MANY STOCKS TO DIVERSIFY YOUR PORTFOLIO CORRECTLY?

1. Look around and start noticing brands around you

searching stocks photo

2. Read news and highlight interesting companies

reading news fundamental analysis photo

3. Check “Collections” in Gainy

stocks collections photo

The easiest way to create a balanced portfolio is to use Gainy
Our algorithms created by professional portfolio managers take into account all these diversification principles to design your own, personalized set of stocks. 
This should give you a sense of confidence in your financial future.

See you, 
P.

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because I want to check what my friend has just sent me
The company developed and maintains technological products and services, namely Snapchat, Spectacles, and Bitmoji. Snapchat is the third most popular app among millennials and gets high profits from ads on the platform. Since TikTok is not available to invest in yet, Facebook is boring, we see Snap as a good choice to diversify your portfolio. We don’t know what keeps those kids so glued to screens in Snapchat but if companies profit from it, we can get a share thanks to investing in their stocks.
because xBox brings us together with friends
Microsoft is the second biggest company on the market in terms of capitalization. Xbox, Skype, Windows Office 365 are all part of Microsoft business as well as it develops, licenses, and supports a wide range of software products and services, as well as designs and sells hardware. The company’s future is as bright as it’s past with all the money the company invests in disruptive tools like AI. Next time you plan to buy another game for the Xbox console, you might also consider buying a Microsoft stock which is not very expensive.
because we want schools to be cooler
So we packed peanut butter and jelly sandwiches for the kids, now it’s time to go to school. The K12 Inc. is an educational technology company. The company offers a private education program, software and education services built to teach online for preschool students up to grade 12 or K-12. The company’s earnings soared up after the pandemic because we came to realise that online learning is not far in the future and may continue the trend.
because we like to treat our pets and ourselves, too
The American manufacturer of supermarket food JM Smucker Co also operates a pet food business including brands such as Milk-Bone and Meow Mix. It’s also the producer of the peanut butter JIF, kid’s all-time favorite filling. The company offers a 2.96% dividend yield and in the third quarter reported a 7% increase in net sales.
because we love playing games
If there is one game to teach you financial literacy - it’s Monopoly, which belongs to Hasbro, as well as unparalleled portfolio of approximately 1,500 brands including MAGIC: THE GATHERING, NERF, MY LITTLE PONY, TRANSFORMERS, PLAY-DOH, BABY ALIVE, DUNGEONS & DRAGONS, POWER RANGERS, PEPPA PIG and PJ MASKS, as well as premier partner brands. The company generates strong cash flows and pays regular dividends. The company’s business moves along the online trend and develops digital content in the form of TV shows, films, computer games.
because everyone has a favorite childhood hero
Disney is a widely diversified company which owns everything from toys to apparel, and books to video games: Disney Parks, ESPN channel, Pixar, Hulu and so much more. And now it bets on streaming services with Disney+ and threatens Netflix’s market share. The company revenue suffered a major drop last year due to closure of Disneylands, but has opened them in October and foresees a strong comeback.
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