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.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.

Sign up for Kiplinger’s Free 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The 60-40 split wasn’t a bad guideline a generation ago, but it’s outdated — and sticking to such a narrow plan could lead to a big loss if there’s a market correction.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.
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.
-
I'm a Financial Planner: Here's How to Invest Like the Wealthy, Even if You Don't Have Millions
Private market investments, once exclusive to the ultra-wealthy and institutions, have become more accessible to individual investors, thanks to regulatory changes and new investment structures.
-
Four Ways a Massive Emergency Fund Can Hurt You More Than It Helps
Saving too much could mean you're missing opportunities to put your money to work. Redirect some of that money toward paying off debt, building retirement funds, fulfilling a dream or investing in higher-growth options.
-
I'm a Financial Planner: How to Dodge a Retirement Danger You May Not Have Heard About
Timing is everything, and sequence of returns risk can mean the difference between a retirement nest egg that's overflowing … or empty.
-
Caring for Aging Parents: An Expert Guide to Easing the Financial and Emotional Strain
Early conversations, financial planning and understanding the progression of care needs can help to mitigate stress and protect family relationships.
-
I'm a Financial Adviser: The OBBB Is a Reminder for Older People to Have a Long-Term Plan
The new tax bill presents a good opportunity for retirees to revisit tax plans, look into doing some Roth conversions and consider plans for long-term care.
-
I'm an Insurance Expert: This Is Exactly Why Your Insurance Rates Are Soaring (and What You Can Do)
A dramatic rise in the frequency and cost of severe weather and wildfires means you need to prepare, prepare, prepare — no matter where you live — for higher premiums.
-
Q3 2025 Post-Mortem From an Investment Adviser: Markets Continue to Climb, Gold Shines
The third quarter saw market gains driven by Fed rate cuts and strong earnings, despite high valuations and concerns about speculative trading and job growth. Gold and international stocks could be potential hedges.
-
Moving Abroad? You Might Need a Cross-Border Financial Adviser
If you want to live in another country long term, you could benefit from an expert's guidance. Here's how to find a good qualified adviser to help with residency requirements, documentation, financial laws and tax impacts.