How to Build a Diversified Portfolio

What diversification really does
Diversification spreads risk across assets that don’t move in lockstep. The goal is steadier returns across cycles.

Core vs. satellite
- Core: broad, low-cost exposure you hold through cycles.
- Satellite: smaller tactical tilts (momentum, value, a strategy sleeve).

Three simple core options
- 60/40: 60% U.S. stocks / 40% bonds.
- Three-fund: U.S. total market + international + investment-grade bonds.
- Growth tilt: 80–100% equities plus a small cash/bond buffer.

Example ETFs (not recommendations)
U.S. stocks: VTI/SCHB/ITOT; International: VXUS/IXUS/SCHF; Bonds: BND/AGG/SCHZ.

Sector balance
Broad index funds prevent accidental 90% tech exposure. If you pick names, check sector weights quarterly.

Rebalancing
- Schedule: annual or semi-annual, or
- Bands: rebalance when a sleeve drifts ±5% from target.
Prefer to rebalance inside tax-advantaged accounts.

Risk controls
- Know your max drawdown tolerance.
- Keep an emergency fund outside investments.
- Avoid margin for long-term portfolios unless you fully understand the risks.

Satellite sleeve (optional)
Allocate 10–20% for rules-based tilts you believe in. Keep it sized so it can’t sink the ship.

Sample glide paths (illustrative)
- Conservative: 40% stocks / 50% bonds / 10% cash.
- Balanced: 60% stocks / 35% bonds / 5% cash.
- Growth: 80% stocks / 20% bonds.

Behavior beats brilliance
Automate contributions, avoid chasing winners, and stick to the plan in bad markets.

Checklist
1) Pick your core mix and funds.
2) Choose a rebalance rule.
3) Automate deposits.
4) Quarterly review.
5) Keep costs and taxes low.

Disclaimer
Educational content only—no investment advice.