#2 Diversify across asset class variants.
Within each asset class, you can practice further diversification. For instance, equities have many representations in the mutual fund world. Variants or subclasses refer to more granular characteristics of the asset class. Here are some examples:

Equities can vary according to: * the size of companies represented in a “basket” (e.g. large vs medium vs small cap stocks) * the way the stocks’ prices move as the stocks chart their growth (e.g. growth vs value stocks) * the geographical market in which the stock moves (e.g. domestic vs international)

Bonds can vary according to: * their maturity dates (e.g. short term vs long term bonds) * their level of risk (e.g. junk bonds, anyone?) * who issues the bond (e.g. government vs corporate) * how they pay out

Cash vehicles vary mostly according to rates of return and level of security offered, which are usually characteristics that are inversely proportional to each other. Generally, within the investment world, the higher the rate of return, the less stable the fund value is expected to be.

Tip: You can find additional diversification down to the class variant level from mutual fund institutitions, Treasury Direct, or online stock brokers who can assist with giving you more information. Try Morningstar as well to help you with more details on this topic.

Note though that most of the time, you don’t really need to seek this kind of detailed representation to achieve a well diversified portfolio, as positions in basic asset classes may be sufficient to lower your market risks.

#3 Diversify across securities or investments within each asset class
If you are buying mutual fund shares, then you are effectively diversifying across securities. By buying into a basket of securities via index funds, mutual funds, ETFs,