There are many ways to diversify a portfolio, but all of them center around a strategy of owning different types of asset classes.

For equity investors, perhaps the best strategy for diversifying a portfolio is to own companies from different sectors in different style categories, maybe even across the globe. The S&P 500 has ten different sectors, and a very broadly diversified portfolio should have exposure to each one in some capacity.

In the style category, investors can differentiate between owning growth versus value, and on a country level an investor can get portfolio representation from developed countries as well as owning Emerging Markets securities.

Investors can also diversify a portfolio between asset classes, in owning a certain percentage of stocks, versus bonds (fixed income), versus real estate, versus alternatives like hedge funds or long/short strategies.

The key in diversifying a portfolio is choosing the mix that best meets your risk/return goals. A more concentrated portfolio (that’s another way of saying less diversified) usually has the objective of achieving a higher return with higher risk, and vice versa.

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