Investing is a great way to grow your money and make it work for you. But suppose you invest in one company or, more specifically, only growth stocks. What happens if that investment goes south?
We all know diversifying our investments is essential, but how do we actually diversify our stock portfolios?
One of the best ways to diversify an investment portfolio is by investing in both growth stocks and dividend stocks. Hence, you are less likely to lose everything if one investment goes terrible such as the case with many stock portfolios during the first two months of 2022. This type of investment strategy in various companies is essential.
And before we jump into it, don’t forget to open your own M1 Finance account and get $50 for free when you fund your account. So even if you already use Robinhood or WeBull, you can still open a new account with M1 Finance. Which should also help make it easier for you to diversify your investment portfolio.
Why Diversify Your Stock Portfolio?
Why diversify your stock portfolio? Because it lessens your risk. By investing in various stocks – growth, value, large-cap, small-cap, international – you spread your risk so that if one stock or sector falls, the others may rise to offset the loss. Diversification is key to any investment strategy because it helps protect your hard-earned money and improve your chances for success in the long run. If you’re looking to build a solid portfolio that will weather any storm, diversify!
This is part of why I love M1 Finance so much – they designed the app and website to help you create your portfolio full of different companies, ETFs, or index funds. Or, as M1 Finance calls their portfolios, a pie where each company or investment holding is a slice. So one slice could be a growth stock while another slice can be a value stock. Or as you will see, I have two different portfolios where I am taking a dollar-cost averaging approach investing $25 each week. One portfolio is for my growth stocks, while the other is for my dividend stocks.
Diversifying with Growth Stocks and Dividend Stocks
Diversifying your stock portfolio is important because it helps to reduce risk. If you only invest in one type of stock, and that stock happens to dip, then your entire portfolio takes a hit. But if you diversify, then even if one stock goes down, the other stocks in your portfolio may offset those losses. This helps to explain why many investors have both dividend stocks and growth stocks in their portfolios.
Dividend stocks are great because they have ongoing dividend payouts and tend to be more stable and less volatile during a recession or market crash. On the flip side, they likely won’t see a drastic increase in the stock price. This is why many investors also invest in growth stocks.
Growth stocks may have greater returns than our dividend stocks, but they are also riskier. You know the saying, with great risk comes great rewards. And investing in a handful of growth stocks helps lower that risk.
So, as you can see, there is a clear difference between our growth portfolio compared to our dividend portfolio, especially during a bearish market vs. a bull market. If you want to grow your money while also protecting it, consider diversifying your stock portfolio. Yes, you minimize your potential for more significant gains, but you are lowering your risk of losing it all. Remember, this channel is about making, managing, and growing your money, which means protecting it and keeping as much of it as possible.
Join me every weekend for our stock portfolio updates. I’ll continue to explain why it’s so important to invest in a variety of stocks, especially dividend stocks, and show you how M1 Finance makes diversifying your portfolio easy and affordable.
I hope you guys enjoyed this blog post and videos. But if you want to make, manage, and grow your money, you need to stick around to read our blog.