Since the market is inherently volatile, employing risk-averse online investment tactics will help protect your portfolio. One of the best ways to beat the market is by making your portfolio more diverse. By spreading your assets across several different kinds of businesses—and in varying business sectors—losses forfeited in one area of your investment can be counteracted by gains in another.

No amount of research is a surefire defense against unpredictable losses in various sectors of the market. Predicting which assets will perform well, and which ones won’t, can be difficult.

It’s wise to spread your investment across asset categories, a practice known as asset allocation. Different asset classes represent different degrees of risk. For instance, mutual funds are typically more risk-averse than buying individual stocks (which is known to be a high-risk, high-reward venture).

Here’s a basic rundown of the most common types of assets you may come across while diversifying your online investment portfolio.

STOCKS

The best way to minimize risks when buying stocks is to own several stocks in many different industries. Since owning stock represents partial ownership in a company, buying 500 shares of Wal-Mart, for instance, grants you a small piece of that company. As the value of the company rises or falls, so too does the value of your shares.

Experts recommend owning anywhere from 10-20 stocks at a given time, allowing for the right balance of manageability and diversification.

BONDS

The purchase of a bond essentially entails lending money to a business, government, or entity, in exchange for profits yielded through regular interest or coupon payments.

Bonds represent a more risk-averse option than stocks, but of course, they’re not entirely risk-free. Every bond is rated according to its risk, with those rated lower paying higher rates of interest, and vice versa. Bonds typically don’t yield the same rate of profit as stocks and are therefore better suited to long-term investing.

MUTUAL FUNDS AND EXCHANGE-TRADED FUNDS (ETFs)  

Mutual funds and ETFs are a realistic option for those without the time or desire to do the thorough research required for successful investment in individual stocks and bonds.

Using a combination of real estate, currencies, bonds, stocks, and other assets, investment companies create mutual funds in which multiple investors pool their money.

ETFs are similar to mutual funds in that they constitute a collection of assets shared by multiple investors but differ in that ETFs are traded and priced throughout the day (mutual funds are only priced at day’s end).

The purchase of mutual funds and ETFs online can often reduce commission costs.  

INTERNATIONAL FUNDS

Investing in individual international stocks and bonds can be complex, since each country’s market operates differently. The consolidated nature of international mutual funds and ETFs tends to be simpler, and are available for online purchase. Risks entailed by your international investment depends on its type, and where exactly it’s invested. As a rule, broad all-world funds tend to be more risk-averse than single country funds.

OPTIONS

Options represent a contract that gives the buyer the right—as opposed to the obligation—to buy or sell a specific number of shares of an asset at a predetermined price, and in a specific time-period. Investors buy and sell options on securities markets.

The complicated nature of options means novice investors may want to steer clear of them until they’ve gained more online investing experience. Options are used in a variety of ways, from protecting assets to building new sources of return, with risk levels varying case-by-case.

FUTURES

Futures work by setting a predetermined date or price and making an agreement to buy or sell an asset when it hits those criteria. Futures typically fall beyond the scope of the average investor, given their highly speculative nature.  

PEER-TO-PEER LENDING

Online peer-to-peer lending is not without its risks, but certain platforms, such as LendingClub and Prosper, offer competitive returns in the zone of 5-8%. Lends are granted to those with a variety of financial needs, such as those wishing to cover wedding costs, buy a vehicle, or renovate their home.  

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