Published on May 20, 2025

How to Build a Diversified Investment Portfolio

Even If You're Just Starting Out

When you're new to investing, one of the most common mistakes is putting all your money into a single stock — or worse, blindly following trends without understanding the risk. That's where diversification comes in.

What is Diversification?

Diversification means spreading your money across a variety of assets so that you're not overly dependent on the success or failure of one single investment.

Think of it like this: if one investment tanks, the others help keep your portfolio steady. It's risk management 101.

Why Diversify?

• Reduces volatility – A mix of asset types tends to smooth out market ups and downs.
• Protects you from bad luck – If one company or sector struggles, you're not sunk.
• Improves long-term results – You don't need to guess which stock will win — just own a little of everything.

How to Start Diversifying

1. Use Broad Market ETFs

Start with low-cost index funds or ETFs that track the entire market. These automatically give you hundreds (or thousands) of companies in one fund.

Examples:

• $VTI (Total US Stock Market)
• $VXUS (International Stocks)
• $BND (US Bond Market)

2. Balance Across Asset Types

Consider your risk tolerance when choosing how much to invest in:

• Stocks (higher growth, more risk)
• Bonds (lower growth, more stability)
• Cash or cash-like assets for short-term needs

Use our Risk Tolerance Quiz to help decide how aggressive or conservative your mix should be.

3. Don't Overthink It

Perfection isn't required. Even a simple mix like:

• 60% Total Market ETF
• 30% Bonds
• 10% International

...can beat the majority of DIY portfolios that try to guess trends.

Final Tip: Automate and Stay Consistent

The real key to successful investing isn't timing the market — it's time in the market. Diversify once, then stick with it through the ups and downs.