When investing money, people often make the mistake of putting all their assets in only one location. They reason that by buying various stocks and funds located within the same country, they are diversifying their portfolio enough to maintain a good amount of risk and return. The truth is that in the modern day, more and more financial advisors and portfolio managers are recommending a change from the traditional viewing of investing. While it is true that money can be properly managed within only United States equities, it is a good idea to take diversification one step further and divide the money into five separate categories.

The first category of investment is cash. This does not mean literally cash. You should never be holding any large sum of cash in liquid form under your bed or in a piggy bank. Put the cash in a real bank or a CD and let it grow. The yield on the return may be low, but at least it is something. With that said, it is never a good idea to keep a large portion of a portfolio in cash. Bank returns are, as mentioned before, low and will not make your money work for you. Ten percent, at very most, should be the amount of cash to have in a managed portfolio.

The next asset class are domestic stocks. Domestic stocks refer to all stocks that are sold by companies within the United States and should be the more well-known equities to all investors. While domestic stocks should never be the only asset within a portfolio, it is still a good idea to have the majority of a portfolio be within this category. Forty to fifty percent is about right.

Bonds is another category that should always have money in it. Investing in bonds really depends on age. The younger you are, the more risk you can take. Therefore age is directly corresponding to the amount of bonds that should be in a portfolio. When you first begin to invest, put only fifteen to twenty percent of the portfolio into bonds, if not less. As you grow older, and need the guarantee of cash flow, move more and more of your portfolio into short-term bonds.

The final two, lesser-known asset classes are commodities and foreign stocks. Commodities means what it sounds like, investing in a good like gold or electricity. This doesn’t mean a person should invest directly into gold by buying gold nuggets, it means they should buy the stock of companies like General Electric. Foreign stocks, meanwhile, simply refers to the obvious; buying stocks sold in other countries.

All in all, it is never a good idea to invest without diversification and using the five asset classes a person can manage their money well enough to have a good future.