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9 Ways to Diversify Your Investments

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The market is a big, confusing place.

As an investor, you have a massive range of options for how to grow your money. Each has its own unique features and risk factors.

If you were to ask 10 people how to approach the art and science of investing, you’d get 10 different answers! But—all of them would be able to agree on one thing: that smart, informed investing is the key to building wealth.

In general, investments can be categorized as either:

  • Stocks,
  • Bonds, or
  • Cash equivalents

In this article, we’ll cover 9 of the most common types of investments you might consider for long-term growth. By getting to know the different types of investments, you’ll have a better idea of how to diversify your portfolio to protect against market risk and volatility at different stages of your life.

Let’s dive in.

1. Stocks

Stocks, also known as shares or equities, are the most easy-to-understand type of investment. 

Stocks are considered a growth investment. This means that they can help grow the value of your original investment over time.

When you buy stocks, you’re buying a small piece of ownership in a publicly traded company. Many of the biggest companies — Walmart (WMT), Amazon (AMZN), and Apple (AAPL) — are publicly traded.

Companies sell shares of stock in order to raise cash; investors can then buy and sell stocks among themselves. Stocks sometimes earn high returns but also come with more risk than other investments.

If you own stocks, you may also receive income from dividends. Dividends represent the portion of a company’s profit that are distributed back to shareholders, like a bonus. They’re paid on a regular basis, and they’re one of the ways that investors may earn a return from investing in stock.

When investing in stocks, understand that the prices can be volatile from day to day. Of course, the value of stocks may also fall below the price you pay for them.

Prices can be volatile from day to day and shares are generally best suited to long term investors, who are comfortable withstanding these ups and downs.

2. Bonds

Bonds are simply loans taken out by an entity. 

When you buy a bond, you’re lending money to an entity, whether that’s a business or government entity.

  • When you buy corporate bonds, you’re lending money to a company.
  • When you buy municipal bonds, you’re lending to a local government.
  • The U.S. Treasury issues Treasury bonds, notes and bills, all of which are debt instruments that investors buy.

Bonds are a fixed-income investment, so you can expect regular income payments. While your money is in the hands of the bond issuer, you’ll receive interest payments. After the bond matures—after an agreed-upon amount of time—you’ll get your principal back.

In comparison to stocks, bonds offer much lower risk to investors, but they also offer a much lower rate of return. There is some risk involved—the company could go belly-up, or the government could default. Treasury bonds, notes, and bills are backed by the “full faith and credit” of the United States, and thus are considered the safest of the bunch. In general, the less risky the bond, the lower the interest rate.

3. Mutual Funds

You’ve heard the figure of speech: “Don’t put all your eggs in one basket.” And, if the idea of picking and choosing individual bonds and stocks isn’t your cup of tea, here’s an investment designed just for investors like you: the mutual fund.

A mutual fund pools money from investors, then invests that money in securities such as stocks, bonds, commodities, currencies and derivatives. The combined holdings of the mutual fund are known as its portfolio.

Mutual funds can be actively or passively managed.

Actively Managed Funds

Actively managed funds have a fund manager who picks securities in which to put investors’ money. Fund managers often try to beat a designated market index by choosing investments that will outperform such an index.

Passively Managed Funds

Passively managed funds, also known as index funds, simply tracks a major stock market index like the Dow Jones Industrial Average or the S&P 500.

Learn how mutual funds can fit into your portfolio

It’s vital to speak to a Fiduciary Financial Advisor that helps you learn more about a fund before investing your money.

Get in touch today to start the conversation!

As an investor, you can buy shares in mutual funds. Each share represents an investor’s part ownership in the fund and the income it generates. Your fund managers do the research for you; they select the securities and monitor the performance. You’ll need to pay an annual fee, called an expense ratio, to invest in a mutual fund.

Because mutual funds invest money in stocks and bonds, they carry many of the same risks.

  • Stock mutual funds, also known as equity mutual funds, carry the highest potential rewards, but also higher inherent risks—and different categories of stock mutual funds carry different risks.
  • Bond mutual funds provide a more stable rate of return than stock funds. Potential average returns are lower.
  • Money market mutual funds are fixed-income mutual funds that invest in top-quality, short-term debt. They are considered one of the safest investments you can make. Money market funds are great for retirees who want to protect their nest egg but still earn some interest.

Some funds invest in both stocks and bonds. How risky the mutual fund is will depend on the investments within the fund. But overall, the risk is lower than picking individual stocks and bonds because the investments are diversified among a range of companies and industries.

When a mutual fund earns money, either through stock dividends or bond interest, investors receive a portion of those earnings. Additionally, when investments in the fund go up in value, the value of the fund increases, too—meaning you can sell your shares for a profit.

4. Exchange-Traded Funds

Exchange-traded funds (ETFs), like mutual funds, are a collection of investments that tracks a market index.

ETFs are a type of index fund that track a benchmark index and try to mirror that index’s performance.

Like mutual funds, ETFs are more diversified than individual stocks. You can further reduce your risk by choosing an ETF that tracks a broad index.

ETFs differ from mutual funds in that shares of ETFs trade on an exchange like a stock, not through a fund company. That means that the price of an ETF fluctuates throughout the trading day, as ETFs are bought and sold. (Mutual funds’ are priced once at the end of each trading day).

As with a mutual fund and an index fund, investors make money if the fund increases in value. ETFs may also pay out dividends and interest.

5. Certificates of Deposit

A certificate of deposit (CD) is a low-risk investment.

In exchange for giving a bank for the term, or a fixed period of time, you receive your money back plus any interest that has accrued. The longer the loan period, the higher your interest rate.

CDs are considered low risk because they are FDIC-insured up to $250,000. Before opening a CD, make sure you have an emergency fund—your principal won’t be easily accessible, as there are major penalties for early withdrawals.

6. Options

Options are an advanced investing technique. 

In short, an option is a contract that gives the buyer the right—but not the obligation—buy or sell an asset at a specific price, by a set date. As the name implies, buying and selling are optional. When you buy an option, you’re locking in the price of a stock that you expect will increase in value.

Call vs. Put Option

Call Option


When you buy a call option, you’re buying the right to buy a stock

Put Option


When you buy a put option, you’re buying the right to sell a stock

Afterward, you may:

  • Buy or sell the stock at the agreed-upon price within the agreed-upon time,
  • Sell the options contract to another investor, or
  • Let the contract expire

When you buy an option, you’re buying the contract, not the stock itself. Most options contracts are for 100 shares of a stock. If your stock increases in value, you’ll benefit by purchasing the stock for less than the going rate.

The risk of an option is that the stock will decrease in value. If the stock decreases from its initial price, you’re out the cost of the contract itself.

7. Annuities

Annuities are a popular retirement income tool because they provide a guaranteed stream of income for life.

When you buy an annuity, you purchase an insurance policy. Upon your retirement, the insurance company will issue a stream of payments—either as a lump-sum payment, or as a series of monthly, quarterly, or annual payments. Annuities transfer risk from you, the owner, to the insurance company.

Annuities come in all shapes and sizes. They may require periodic premium payments, or just one up-front payment. They may or may not be linked, partially or in full, to the stock market. Payments may be immediate or deferred to a specific date. You can add Living Riders, which provide benefits while you’re alive, and Death Benefit Riders, which protect your beneficiaries against a decline in the annuity’s value.

While annuities are fairly low risk, they aren’t high-growth. Annuities are a way to supplement your retirement income strategy.

learn more about annuities for retirement

8. Cryptocurrencies

A cryptocurrency is a digital or virtual currency that uses cryptography, based on blockchain technology.

Cryptocurrencies are a fairly new investment option. The most popular versions are Bitcoin and Ethereum, but there are thousands of different cryptocurrencies in circulation. Many people invest in cryptocurrencies as they would in other assets, like stocks or precious metals.

While cryptocurrency is a novel and exciting asset class, cryptos often have huge fluctuations, making them a very risky investment. They don’t have any government backing.

9. Commodities

Commodities are basic goods that you can invest in.

There are four main types of commodities:

  1. Metals (e.g., )
  2. Agricultural (e.g., wheat, corn and soybeans)
  3. Livestock and meat (e.g., pork bellies and feeder cattle)
  4. Energy (e.g., crude oil, petroleum products and natural gas)


This includes precious metals like gold and silver, as well as industrial metals like copper.


This includes wheat, corn, and soybeans.

Livestock & meat

This includes pork bellies and feeder cattle.


This includes crude oil, petroleum products, and natural gas.

A commodity market is a physical or virtual marketplace where the buying, selling and trading of raw materials or primary products take place at current and future dates. There are about 50 major commodity markets worldwide that facilitate investment trade in about 100 primary commodities.

Commodities offer one way to diversify your portfolio beyond stocks and bonds. Because the prices of commodities have an inverse relationship to stock prices, some investors also rely on commodities during periods of market volatility.

Commodities investing runs the risk that the price of a commodity will move sharply and abruptly in either direction due to sudden events. For instance, commodities are subject to geopolitical risk, which can impact the flow of goods and labor.

How to purchase investments

No matter how you choose to invest your funds, you’ll need a brokerage account. You can transfer money into and out of a brokerage account much like a bank account, but unlike banks, brokerage accounts give you access to the stock market and other investments.

You can open a brokerage account in as little as 15 minutes, and once funded, you’ll be ready to begin investing.

Open An Account

Learn more about how Prosperity can help you achieve your financial goals.

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We Can Help

You can build your portfolio from several types of assets. Each type of investment offers a different level of risk and reward. Your Fiduciary Financial Advisor will help you develop an investment strategy that aligns your asset allocation with your goals.

If you’d like to inquire about our investment planning services, please fill out the form below and we’ll get back to you shortly. We look forward to hearing from you.

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