Cramer's Five Tips for Diversification

Jim Cramer is one of CNBC's best known personalities. Through his show and his books, he has consistently championed a few tips for portfolio diversification. Here are five of them:

Gold

Jim Cramer constantly stresses the importance of diversification. In the book, “Getting Back to Even,” he champions this yellow metal and its bull market.

Cramer has argued that gold is a great commodity to invest in to provide security from a economic downturn. The inverse relationship between the market and gold can protect your portfolio on a bad day. Cramer has said, “you don't have to own gold coins or gold EFTs, a gold mining stock can ensure this safety net.”

Although gold has sold-off recently, the precious metal could make your portfolio shine even when markets seem shaky.

Secular Stocks

Secular stocks, unlike cyclical stocks, continue to grow despite abrupt changes in the economy. Strategic investing can keep you diversified and stable in an economic downturn.

For example, pharmaceutical companies may see strong growth as baby boomers age. This industry could continue to boom for the next 20 - 30 years.

Investing in BRIC countries and other industrializing countries facing strong economic growth may be a smart move. These countries will expand their infrastructure, and sectors including manufacturing, construction, energy, and raw materials may be likely to boom in coming years.

High Dividend Yielding Companies

Cramer has also suggested investing in stocks that yield high dividends. These stocks could help to reduce volatility. Companies that pay dividends ensure that their shareholders receive methodical payments. This could be a great option for those looking for income in the stock market.

Reinvesting Dividends and the Power of Compounding

In the past, Cramer has championed compound investing--the earlier one starts to invest, the more their money will grow, and the more that can be reinvested.

Foreign Markets

“Foreign stocks are a must for any complete portfolio,” says Cramer. Investing in other countries provides protection from political and economic chaos. As doubts about a double dip recession abound, foreign stock seem more appealing. Investors may want to consider countries facing strong growth including Brazil, Russia, India, China (BRIC), and Indonesia or even Canada. Cramer said on his show, Mad Money, “you don't have to invest in exotic countries. Canada is diversified enough.”

Market News and Data brought to you by Benzinga APIs