A diversified investment has wide-ranging benefits. It reduces your concentration of risk by creating a spread across instruments, industries, segments, and even countries. It serves as a hedge against unforeseen events in the market and protects your portfolio from steep losses during adverse conditions.

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If you’re new to diversifying investments, here are 4 easy tips that will help you get started:

Diversify across instruments

Make sure that you are not exclusively dependent on a single investment instrument. Several instruments extend good returns in the long run while having an inverse price action during market fluctuations. Stock and gold are the perfect examples in this case. Since 2010, gold (24 karat) has given a return of about 250% while benchmark indices such as Sensex have extended returns worth more than 300%. However, both of them respond differently during market events, especially the short-term ones. Gold prices increase during stock volatility and decrease during periods of stability in the market. It is why precious metals such as gold and silver are an integral part of every seasoned investor’s portfolio.

Diversify across segments

Ensure that you zero in on select industries and verticals that you feel have good prospects for your investment horizon. Invest in them by giving adequate weightage to the small, mid, and large-cap scrips based on your risk appetite. While small-cap stocks have high growth potential, such returns also come with enhanced risks. On the other hand, large-cap stocks are more stable but their returns are also modest. The mid-cap segment offers a mix of both of these aspects.

Diversify across geographies

Oftentimes, market events are specific to geographical locations such as states, countries, unions, and trade blocs. This phenomenon occurs due to socioeconomic factors, sociopolitical developments, diplomatic ties, regulatory and administrative environments, and so forth. If possible, make sure that geographical diversification is also a feature of your investment portfolio. However, if you decide to spread your investments globally, you must keep track of all developments that could directly or indirectly affect your portfolio investments.

Avoid over-diversification

It’s said keeping all eggs in one basket is never a safe option. However, keeping all of them in separate ones cannot be deemed as a logically sound alternative either. The main objective of diversification is to achieve a good spread, wherein you can seamlessly monitor your investments as well as the segments in which they operate. Never over-diversify to a point that such tracking itself becomes a task. You must always have the flexibility to make informed decisions in time.

So, as we celebrate diversity in our society and look forward to a bright future, make it a point that diversity also reflects in your investment portfolio. A well-diversified portfolio with constant rebalancing is what can create a wealth snowball for you – growing on and on throughout your investment journey!

The writer, Mrinal Singh, is CEO and CIO at InCred Asset Management. The view expressed are personal