If you are an investor in the stock market you most certainly should understand that diversification is extremely important to your long-term success. Let’s take a look at four different ways that an investor can stay invested in the stock market, but also be diversified.

4 Ways to Diversify Your Stock Portfolio

1. Diversify by sector- The truth is different industries typically perform very differently in different market conditions. This allows you to diversify your stock portfolio by including different sectors, some that are more economically sensitive and some that are less economically sensitive.
2. Diversify by market capitalization- This is an area where many investors fall short. It is certainly a good idea to try to diversify your portfolio by market capitalization. You can do this by making sure you have a fairly equal weighting of large cap stocks, mid cap stocks, and small cap stocks. There are times when small caps perform large caps and vice-versa, but it isn’t wise to stay concentrated in only one area.
3. Diversify Internationally- In today’s modern economic world an investor needs to own some stocks in countries other than their own. Emerging markets are important to have a piece in, as are some of the more mature economies throughout the world. Though it is a global economy now, not all stock markets will respond in the same way at the same time.
4. Mutual funds- Maybe this isn’t exactly the answer you were looking for, but the truth is mutual funds are a great way to diversify your investment portfolio. Mutual funds allow those with smaller amounts of money to be diversified quickly. Find a solid mutual fund that has stellar results and low expenses and put some of your money into it for the long run.

Use this four methods as guides when you are diversifying your portfolio. Whatever method you use, make sure in the end your portfolio is diversified and ready for whatever the market throws your way.