6 Strategies to Build Portfolio Diversity
Investors need to cover their bases with a good variety of financial vehicles that reach beyond the old stock-and-bond game.

Imagine if the general manager of your favorite baseball team filled his roster with only pitchers and catchers.
Would that work for you as a fan?
Probably not. Even if they were all among the best in the game, you’d still want the top player in each of the other positions out there working toward a win, not to mention a strong bench to back them up. If your team’s GM was ignoring all the other options available, you’d likely be screaming at your TV or foaming at the mouth on Facebook.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
And yet, if you’re like so many investors, your portfolio may be made up almost exclusively of two kinds of players: stocks and bonds.
Perhaps you’re aware there are other choices out there, but it seems like a lot of work to explore them. Maybe you’ve decided to just go with what you know. Or it’s what your financial professional recommended, and who are you to ask questions?
Typically, most of the portfolios we see when prospective clients come to our office — at least three-quarters of them — are 80% to 100% constructed of stocks and bonds. And when I analyze them, I find they aren’t even very well diversified within the different categories and sectors available.
I get it. Twenty years ago, individual investors had to stick to mostly large-cap stocks and high-grade bonds because their opportunities were limited. But times have changed; the financial industry keeps evolving and creating solutions to suit the needs of individual investors and savers. Diversifying your portfolio no longer means owning a couple of mutual funds and a certificate of deposit.
The 60-40 split wasn’t a bad guideline a generation ago, but it’s outdated — and sticking to such a narrow plan could lead to a big loss if there’s a market correction. So why not take some time to review what you have and scout out a few game changers?
- Annuities. Annuities come in all shapes and sizes and enable contract owners to enjoy some market upside (up to a set cap) but avoid the downside (you won’t earn interest credits but you won’t lose any of your principal). There are immediate annuities and deferred annuities, each with their own benefits and drawbacks. And depending on the annuity there may be additional features such as income or death benefit riders, although it should be noted that those generally come with additional costs.
- Exchange-traded funds (ETFs). The most common ETFs are designed to track the performance of a market benchmark or index, such as the S&P 500, the Nasdaq or the Russell 2000. An ETF is a diversified collection of assets (like a mutual fund) that trades on an exchange (like a stock). ETFs are growing in popularity because they’re easy to use, low in cost and tax efficient. And they’re evolving — many now involve much more than just benchmark mirroring.
- Real estate. It’s getting easier for everyday investors to include real estate holdings in their portfolios. You don’t have to be a landlord fixing toilets at midnight or sit on a piece of land for years. You can put your money into a real estate investment trust (REIT), a company that owns income-producing real estate (warehouses, office parks, shopping centers, etc.). The combination of current income and long-term growth potential may make a REIT worth looking into, especially for a retirement plan.
- Life insurance. The insurance industry continues to come up with new products to appeal to consumers. Though many still think of life insurance strictly as a way to take care of loved ones when they die, it can be an important player on your financial team. While not a replacement for long-term care insurance, some policies offer accelerated death benefits if the holder has a terminal, long-term or incapacitating illness that requires specialty care. There also are policies that offer income tax free loans from which you can pull money in retirement. However, as with other financial vehicles, policy loans and withdrawals will reduce the available cash values and death benefits and may cause the policy to lapse.
- Emerging and foreign markets. These investments have been around for a while, but they’re gaining in popularity as awareness of our global economy grows. As U.S. interest rates rise, some investors appear to be looking overseas to generate returns.
- Management styles. Just as the definition of diversification is changing, so is the way managers handle money. Buy and hold isn’t always the way to go anymore; tactical asset allocation is a more active management style that shifts the holdings in various categories to build and, perhaps more important, preserve a portfolio as the market changes.
Of course, an important factor for any winning franchise is how the team members play together — so talk to your financial adviser about the role some of these strategies might have in your portfolio. Each should have a purpose you understand and fit within your comfort level. Then you can decide if there are some changes you want to make to your roster.
Kim Franke-Folstad contributed to this article.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Eric Fritts is a Chartered Financial Consultant CHFC® with Elevated Wealth Management in Franklin, TN. He holds his Series 65 as well as his life and health license.
-
The Trade Desk Stock Plunges on Soft Revenue, Weak Outlook
The Trade Desk stock is plunging Thursday after the advertising platform missed fourth-quarter revenue expectations and issued weak first-quarter guidance.
By Joey Solitro Published
-
New Colorado Tax Credit: What’s the Scoop?
State Tax Everything you need to know about the Colorado family affordability tax credit in 2025.
By Kate Schubel Published
-
Heirs Inheriting Crypto? Don't Make It a Headache for Them
If you have cryptocurrency in your estate, you'll need meticulous plans and clear instructions to ensure beneficiaries don't lose out after you're gone.
By Patrick M. Simasko, J.D. Published
-
DIY Retirement Planning: A Smart Move or a Risky Endeavor?
You can cut the cost of retirement planning by doing it yourself. But for something this important, it might be wiser to call in the professionals.
By Jennifer Lahaie, RICP®, CTS™, CAS® Published
-
Galentine's Day: A Time to Promote Financial Literacy Among Friends
Here are three things women can do to help their friends gain financial knowledge and confidence.
By Stacy Francis, CFP®, CDFA®, CES™ Published
-
These Two Issues Are Critical to Efficient Retirement Planning
You're saving hard for retirement, but if you're not thinking ahead about taxes and the cost of health care, your savings — and your legacy — could be at risk.
By Cliff Ambrose, FRC℠, CAS® Published
-
How to Use Good Debt (While Identifying and Avoiding Bad Debt)
Not all debt is bad, but knowing the difference between good debt and bad debt and how to use them can help you get ahead financially and stay ahead.
By Mike Decker, NSSA® Published
-
Four Potential Tax Changes to Keep Your Eye On
Many taxpayers may be surprised by a larger tax bill if the TCJA isn't extended. Check out these proactive strategies to help mitigate some of the impacts.
By Adam Frank Published
-
What Can Happen if You Live Together Without a Cohabitation Agreement?
Lots of people live together without being married, and there's nothing wrong with that, but if things go south or one partner dies, complications can ensue.
By H. Dennis Beaver, Esq. Published
-
Six Risks of Delaware Statutory Trusts in 1031 Exchanges
Here's how proper preparation can help you successfully navigate these DST risks, from market uncertainties to structural limitations.
By Daniel Goodwin Published