The bond market is an important key to a diversified portfolio because it has a low correlation to the broad market, or moves to its own beat, and does not follow the same general direction of the stock market. This type of diversification is important and can protect a portfolio.
Another way to diversify is through the currency and commodity markets. Currency and commodity ETFs are a boon to investors because they give individuals access to market segments once off-limits. For instance, the simplicity of a commodity ETF has made investing in gold simpler because there is no physical delivery involved. [Investors Look to Commodities ETFs for Diversification]
It is important to realize that a certain amount of risk is involved whenever an investor puts capital into markets. By allocating across several sectors, asset classes, and the bond market, losses from market movements can be mitigated. The goal is risk management, rather than eliminating risk.
Tisha Guerrero contributed to this article.