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How to diversify your retirement portfolio

Choosing the right mix of investments is essential to ensure your money is performing and your goals remain on track. Read our guide on how to diversify your retirement portfolio to learn more

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Investing in your future is essential.

Building a retirement portfolio allows you to invest now to provide an income when you stop working and make the most of your retirement.

But having the right strategy is vital to give your money the best chance to flourish.

Diversifying your retirement portfolio is a method to achieve balance and limit exposure from its most formidable foe – risk.

In this guide, we look at how you can diversify your retirement portfolio and optimise your retirement savings.

What is a retirement portfolio?

A portfolio is simply a collection of things. These can be documents, drawings, records, you name it.

In finance, a retirement portfolio is a collection of investments. These typically include assets such as stocks, bonds, mutual funds and exchange-traded funds (ETFs).

However, a portfolio can also include real estate or alternative investments such as art.

Unlike other types of investment portfolios, a retirement portfolio has a specific goal in most cases. To provide an income once you reach retirement age or when you decide to leave the workforce.

Diversification and its benefits

You have probably heard the old adage ‘don’t put all of your eggs in one basket’. It’s one you often hear in finance and for good reason.

Putting all your money into one asset can go one of two ways. If it goes up in value, you make a lot of money. But if it goes down, you could lose everything.

Rather than going all in, you can spread your investments across different asset classes, industries, and geographic regions, limiting your exposure to just one asset.

This is called portfolio diversification.

It is a common investment strategy used to help reduce volatility and an investor’s overall risk profile.

The aim is twofold. The first is to reduce the impact of potential losses from any single investment. The second is to produce the potential for positive returns.

How to diversify your retirement portfolio

Core components of a diversified portfolio

Investments typically fall into one of the following five asset classes:


These are stocks and shares you buy in a company. This is usually done by purchasing individual stocks and shares or investing in a readymade basket of equities via a fund.

The share price (value) is tied to the company’s performance. The better they perform, the more money you make.

While equity investments generally have a strong rate of return, they are also the most risky.


  • Higher returns than other asset classes
  • Higher level of risk and exposure to market volatility

Fixed income

These are usually bonds, which are loans to governments or companies.

As the name suggests, fixed-income products pay a fixed amount to investors over a fixed period. Investors are paid in the form of interest or dividend payments.

The two most common types of bond investments are:

  • Corporate bonds
  • Government bonds (these are called gilts in the UK)

These fixed-income products are usually bought as individual bonds or through bond funds. Like other funds, bond funds give the investor exposure to a readymade basket of bonds and other debt instruments.


  • More stable returns and a steady stream of income
  • Less volatile than other asset classes

Be aware that the characteristics of high-yield bonds are speculative. These bonds are rated with a low credit rating by international credit rating agents such as Moody’s rating of Ba1 or below and S&P rating of BB+ or below.

These bonds carry a relatively high coupon to reflect the higher level of risk to investors.

Cash investments

Cash investments are short-term investments that can protect your money from market risk. Your capital may also benefit from modest interest payments.

Two examples of cash investments are:

  • Money market funds
  • Certificates of deposit (CDs)

Cash investments may also include bank products such as savings accounts where your money can earn interest.


  • Relatively stable and low risk
  • Lower returns and may not keep up with inflation


Commodities are the raw materials used to make finished goods. Some examples include:

  • Gold and other precious metals
  • Fossil fuels such as oil
  • Wood, metal and other materials

What makes commodities unique from other assets is they are fungible. In other words, a barrel of oil from one producer is the same as a barrel from another. This means one can be swapped for another without any loss of value.


  • A good hedge again inflation as their value typically rises with inflation
  • Very volatile asset class


Property investments generally fall into one of two categories:

  • A physical property you own
  • Real estate investment trusts (REITs)

Like investing in a mutual fund, REITs allow you to own a small portion or multiple properties.

REITs and buy-to-let investments are very different. As such, the pro, cons and characteristics of each differ wildly.

However, both are often considered illiquid assets. This is because the sale of a property takes time, meaning it takes longer to access the money.

This can be an issue if you need to access the money quickly. For example, if you want to release capital to take advantage of another investment opportunity.

Ways to diversify your retirement portfolio

Proper diversification requires you to invest in assets with a low correlation, meaning they behave differently from each other. The idea is, if the value of one asset falls, the other goes up.

Below are some of the ways you can diversify your retirement portfolio.

Asset allocation

Asset allocation involves dividing your investments across the different asset classes mentioned above.

How you divide your investments will depend on several factors, such as the risk level you are comfortable with, your time horizons and your retirement goals.

For example, equities are high risk, high reward. This means a portfolio heavily weighted towards equities will carry a greater risk than one that is more balanced.

By location

Investing in assets across different countries and regions means you are not dependent on one country’s economy or its government’s policies. This can help minimise the impact of market fluctuations.

Be aware that investment risk can increase in different regions. The UK and the US are considered ‘developed markets’. As such, they are generally less volatile than countries such as Russia and India, which are emerging markets.

By sector

This involves investing in various sectors or industries, such as technology, healthcare, finance, and energy.

Ideally, you should invest in sectors or industries with a low correlation. Doing this can help reduce the impact of a downturn in any particular industry.

Make use of funds

Rather than buying individual assets, you could invest in mutual funds and ETFs. These can make the process of building a diversified investment portfolio more straightforward.

There are various different types of funds. Two of the most common are index or fixed-income funds.

With index funds, you can benefit from instant diversification. These funds allow you to invest in a readymade basket of assets for a given index, such as the S&P 500 or FTSE 100.

Those who want to add fixed-income products to their portfolio can invest in a bond-focused exchange-traded fund (ETF).

Life insurance

We usually think of life insurance as a product used for estate planning that provides financial protection for our loved ones when we are gone.

And while this is the case, some life insurance policies can also help you diversify your retirement portfolio.

Indexed universal life insurance is a type of permanent life insurance. A policy has components – a death benefit and a cash value.

The cash value portion is tied to a stock market index such as the Hang Seng or S&P 500. The insurance company that runs the policy will invest in a wide range of assets of a given index.

This means they work in a similar way to a mutual fund, providing greater exposure to help diversify your investments.

Be aware of the limitations

Diversification can limit your risk exposure. The keyword here is ‘limit’. It can’t help you avoid risk altogether.

It also only helps reduce certain types of risk, of which there are two main types:

  • Systematic risk – this includes inflation, rate hikes, recession etc.
  • Unsystematic risk – this is specific to an industry, sector, region or type of asset.

Diversification helps unsystematic risk exposure. It does not help reduce systematic risks.

Another thing to be mindful of is holding too many investments. Doing so could mean you spread yourself too thin, something that can harm growth.

A diversified retirement portfolio should be balanced. It should also align with your investment goals.

Diversify your retirement portfolio

Get your retirement plans on track with Holborn Assets

Retirement planning is about preparing for the future. It is about making sure you have a nest egg big enough to support you financially when you choose to stop working.

Building a well-diversified retirement portfolio is one way to help you financially prepare.

That means picking and/or guiding you to the right mix of assets that align with the levels of risk you are comfortable with and your goals. In other words, creating the right balance of risk and reward.

There is no one-size-fits-all solution. But if you are looking for the optimal solution for you, we can help.

At Holborn Assets, we provide financial advice and wealth management solutions tailored to you. We work closely with clients, providing award-winning service and support to help them reach their financial goals.

We can’t predict the future, but we can prepare for it. Make sure you are prepared with Holborn Assets. Book a free, no-obligation meeting today and learn how we can help you.

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