5 Easy Ways to Start Diversifying Your Investment Portfolio

Introduction

Still investing all your savings in a single bank fixed deposit? It’s the biggest mistake that you can make. If you are clueless, in this blog, we take you through the main reasons why you should diversify your investment portfolio, how to diversify your investment portfolio and 5 easy ways to start diversifying your Investment Portfolio.

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Top 4 reasons to diversify your portfolio

First, let’s check the 4 major reasons due to why you should diversify your investment portfolio.

1. Reduces risk

Remember the old proverb “Don’t put all your eggs in one basket”? The same logic applies here as well. When you invest in different asset classes and securities, your risk gets spread instead of being concentrated. Even if there is a loss in one asset class, others can cushion that loss.

2. Enhances return stability

Different investments react in a different way to market events. This stabilises overall return in the long term.

3.  Improves liquidity

Imagine that you are in urgent need of funds. When you invest across different asset classes, there will be quick access to funds whenever requirements arise.

4. Achievement of financial goals

You might be having different financial goals such as marriage, children’s education, retirement etc. A major benefit of allocating to different asset classes is that it effectively aligns investments to specific goals.

5 Easy Ways to Start Diversifying Your Investment Portfolio

No idea how to diversify your investment portfolio? No worries. Here are the 5 easy ways to start diversifying your investment portfolio.

1. Assess Your Risk Profile

Based on your risk profile, the nature of diversification in your portfolio can be determined. Are you someone who prefers low-risk investments and gives priority to capital preservation? Then, go for a portfolio that is more debt-oriented. On the other hand, if you are a more aggressive investor, the best option would be to invest more heavily in equity. The proportion of investment in different asset classes will vary that takes us to the next important topic i.e. asset allocation

2. Determine the Ideal Asset Allocation

Asset allocation is simple. It is all about how you distribute or allocate your capital across different assets and asset classes. Make use of online tools and find out the potential returns you could get from various assets. This makes your job of deciding the ideal asset allocation easier.

3. Diversify Across Investment Horizons

Make sure that you include assets and investment schemes with different investment horizons while doing portfolio diversification. The danger of focusing only on long-term goals is that you may not have the funds required for short-term goals. Focusing only on short-term goals also comes with the same risk. Thus, the key is to invest in short-term, medium-term and long-term assets to fulfil your various financial objectives with different timelines.

4. Rebalance your portfolio periodically

Over a period of time, the values of different assets in your portfolio will grow or decline. Based on that you should change your asset allocation as well. Thus, keep in mind to review your portfolio periodically and check whether your assets are still allocated as per your preferred ratio. In case there are any changes, rebalance your portfolio so that it will help bring back the original asset allocation. 

5. Include life insurance

Have you yet to take a life insurance cover? It’s one of the biggest blunders that many people make. If you are in your twenties or thirties, this is the best time to purchase adequate life cover so that you can benefit from lower premiums. It’s not that life insurance plans just protect your family, it also help you achieve a wide range of other life goals. For example, ULIPs combine insurance and investment benefits, whereas pension plans offer the dual benefits of a life cover and post-retirement income.

Top 5 asset classes to invest in 2026

Now you might be thinking about how to diversify your investment portfolio. To make your job easy, we have identified the top 5 asset classes of 2026.

1. Equities

Indian stock markets are backed by strong corporate earnings and digital transformation. If we calculate the returns of the last 10 years, Nifty 50, the stock market index in India has returned a CAGR (compounded annual growth rate) of nearly 12.5%. Having said that, global uncertainties like the high US tariffs and ongoing wars pose a threat to the stock markets. Here you can diversify your portfolio by investing 50% in large cap stocks and 25% each in mid and small-cap stocks. This will also help to tide us over volatility.

2. Fixed Income

If you are a conservative investor, you can think of investing in bonds and fixed deposits in 2026. Government securities, corporate bonds, and fixed-income mutual funds provide stability. The current yield for 10-year Indian government retirement bonds is nearly 6.72% while corporate bonds offer returns in the 6.5% – 9% range, depending on credit ratings.

3. Gold and silver

Gold and silver are the other two avenues that you can consider for diversifying your investment portfolio. From January to October 2025, gold prices have gained over 60%. On the other hand, silver prices have surged over 65% in 2025. For investing in gold and silver, you can consider gold ETFs and silver ETFs.

4. Real Estate

The Indian real estate industry is witnessing a boom, especially in the commercial and warehousing space. When it comes to returns, the top Indian REITs (Real Estate Investment Trusts) such as Embassy REIT, Brookfield India REIT, Mindspace REIT, and Nexus Select Trust REIT, have provided varying returns in the range of 6% – 39% since their inception.

5. Alternative investments

One more option for diversifying your investment portfolio is the Indian alternative investment sector. This consists of Portfolio Management Services (PMS) and Alternative Investment Funds (AIF). By 2030, this sector is expected to surpass the Rs 100 lakh crore threshold. Private equity, hedge funds, and cryptocurrencies are on an upward spiral and India’s alternative investment market is projected to grow at a CAGR of 33%. However, there are some regulatory hurdles that should be taken into consideration.

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Key Takeaways

• When you diversify your investment portfolio, it reduces risk, boosts return stability, improves liquidity, and helps in the achievement of financial goals
  
• 5 easy ways to start diversifying your investment portfolio are assessing your risk profile, determining the ideal asset allocation, diversifying your investment horizons, rebalancing your portfolio, and taking a life insurance policy
  
• In 2026, the top 5 asset classes to invest in would be equities, fixed income, gold and silver, real estate, and alternative investments
  

Parting Words

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