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Tips to Build a Diversified Investment Portfolio


A key theme in investing that never goes out of style is building a diversified portfolio to reduce investment risk. Below are eight key investing concepts for Extension educators to suggest to their clients:

  1. Quantify Your Goals- Encourage clients to write down their goals with the projected cost and a time deadline. Doing this will help them select appropriate investments and provide the motivation required today to set money aside for the future.
  2. Discuss Risk- Explain that investment risk “comes with the territory.” In addition, even cash assets like money market funds and bank savings accounts have a risk of loss of purchasing power due to low returns and inflation. In a soundbite, “Investing means taking risks, and not investing also means taking risks.”
  3. Assess Your Risk Capacity- Encourage clients to use one or more tools like the University of Missouri’s Investment Risk Tolerance Assessment to honestly self-assess the level of financial risk that they are comfortable with. There are no “right” or “wrong” answers and survey respondents receive a score and an analysis of what their score means.
  4. Beware of Emotional Reactions- Advise clients not to panic and sell during inevitable market downturns. They will likely experience many during their working lives. There are two key emotions that tend to drive investor decisions: greed and fear. A well-known graphic, called The Cycle of Market Emotions, shows that investors often buy stocks until a high point (euphoria) is reached and sell them at a low point (despondency). Caution against market timing.
  5. Create an Investment Portfolio- Explain the key steps to doing this; defining portfolio objectives, determining risk tolerance, determining asset allocation percentages (e.g., stock %, bond %, cash equivalent asset %) and domestic vs. foreign securities percentages, select investments that meet outlined specifications, and integrate investments with tax and retirement planning (e.g., investing in tax-deferred investments, like the TSP, for retirement).
  6. Minimize Investment Expenses- Take proactive steps to pay the lowest amount of fees possible, by looking for low expense rations. An expense ratio is the percentage of an investment’s assets used for administrative and other operating expenses.
  7. Understand Investment Indexes- Explain that market indexes measure various aspects of stock market performance and can be used as a benchmark by individual investors. Most frequently used U.S. stock indexes include the Dow Jones Industrial Average, Standard & Poor’s (S&P) 500, the Russell 1,000, the Wilshire 5,000, and the NASDAQ Composite. A widely used index for foreign securities is the MSCI World Index which includes 23 developed countries.
  8. Beware of Investment Fraud- Remind clients that nobody will care about their money as much as they do and that stockbrokers are held to a suitability standard when they sell stocks- not a fiduciary standard that places a client’s interests first. Also, encourage them to practice “investor self-defense”: take time to investigate new investment products, consider their goals and risk tolerance, check the background of investment advisors, keep good financial records, and walk away from any investment (e.g., cryptocurrency and indexed annuities) they don’t fully understand.

In summary, a diversified portfolio will not eliminate investment risk, but it can help reduce it. For additional information about investing, review the Cooperative Extension course Investing for Your Future.

For additional content related to working with clients on personal financial issues, visit the OneOp Personal Finance Team. Free CEUs are available for AFCs and CPFCs through our webinars.

Written By:
Barbara O'Neill
Edited By:
Selena Garrison
Program Coordinator

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This technology is supported in part by New Technologies for Ag Extension (funding opportunity no. USDA-NIFA-OP-010186), grant no. 2023-41595-41325 from the USDA National Institute of Food and Agriculture. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the view of the U.S. Department of Agriculture or the Extension Foundation. For more information, please visit You can view the terms of useat

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