Investing for long-term goals like retirement or a child’s education gives you the ability to ride out market ebbs and flows. A portfolio built with a balance of lower-risk assets like bonds and higher-risk stocks can grow over time. Using diversification strategies reduces overall risk, and can help you sleep at night.

Portfolio Diversification Strategies doesn’t eliminate risk, and there is no such thing as a completely “safe” investment. However, it helps reduce risk by spreading out your investments across asset classes, which may have low correlations and help to level out volatility.

For example, when some stock sectors lose ground in a given year, others can pick up the slack. That’s why it’s important to diversify your investments into many different areas, including small and large companies, domestic and international stocks, bonds (of various maturities), real estate and commodities such as gold or energy.

Long-Term Investment Strategies That Deliver Results

Diversification is best achieved through a combination of passive and active investment approaches. Active management can seek to capture above-average returns in specific companies or industries, but is typically less diversified than a more traditional approach. Passive investments, such as index funds, offer broad exposure to many different sectors, and are a more streamlined way to diversify your investments. Regular rebalancing keeps your portfolio in line with the intended asset allocation and prevents chasing gains or fleeing to safety during market declines. But rebalancing also involves transaction fees and other costs, and could trigger capital gains taxes, which must be factored in.