All of us inherently already know that we should diversify our investments. We grow up as children hearing such phrases as “Don’t put all your eggs in one basket.” If we recognize risk to any significant degree and act with some amount of humility that a decision, we make may actually not work out… we know already that we should spread out our risk when we manage our money. Solomon highlights this principle in Ecclesiastes.

Ecclesiastes 11:2  Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.

There are many asset classes to consider in order to diversify your investments. You are not limited to the stock market, though it can be an important part of a diversified investment plan.

• Cash Equivalents include savings accounts, certificates of deposit, and other similar investments which offer a fixed rate of return. Most are insured by the Federal Deposit Insurance Corporation (FDIC) and are considered low risk.
• Fixed Income includes investments like bonds in which you loan money to a government or business, and they agree to pay it back at a specified time with a specified interest, or return, on the loan.
• Stocks represent investment in specific companies or across many companies. When investing in stocks it is important to actively do your homework. Those who do not have a lot of time to invest personally should consider diversifying within stocks through use of mutual funds or exchange traded funds (ETFs).
• Real Estate includes any home or property you have purchased to live in/on, as these also go up or down in value over time.
• Precious Metals / Commodities include physical assets like gold or silver or copper. They inherently have value that has been demonstrated consistently over time, though it may fluctuate up and down like other investments.

Even within a particular asset class you can diversify. For example, let’s assume you have $10,000 to invest in certificates of deposit (CDs). Instead of investing all of it in one CD with a duration of 2 years, you may consider separating it across multiple CDs perhaps with a “ladder” structure that has one maturing in 1 year, a second maturing in 3 years, and a third maturing in 5 years. You may even diversify further by getting CDs at different banks, though it may not be necessary if they are FDIC insured.

For a similar example with bonds, you would consider not putting all your funds in the same bond. You may consider getting some government and some corporate bonds… or invest in a bond fund or across two bond funds to diversify further. You could invest in bonds with different maturity dates.

Diversification helps to manage your risk and return. A diversified portfolio will not always get the highest returns, but neither does it get the lowest returns or carry as much risk toward losing your initial investment. Diversification is important across multiple asset classes but is also important within any one asset class.

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Remember that all you have belongs to God. Manage your money God’s way. Visit GrowGodsMoney.org .