Once you have accumulated a good amount of assets in your core exposure, you should move on to phase three: diversifying your portfolio. In this phase, your main objective is increasing your portfolio’s diversity beyond your core market exposure. The goal of this phase is to deepen and broaden your exposure to the market.

To deepen your exposure to the market, you will need to add asset classes other than your core or large-capitalization stocks in your portfolio. Ideas for diversifying your portfolio include adding smaller assets from the equity asset class, such as a small-capitalization stock fund or a mid-capitalization stock fund.

To broaden your exposure to the market, you will want to purchase asset classes in addition to U.S. large-capitalization stock funds. For example, if your core market exposure is composed mostly of U.S. large-capitalization mutual funds, you can broaden your asset classes by purchasing international stock funds, international bond funds, a real estate investment trust, an emerging markets stock fund, or an emerging markets bond fund.

During this phase, you should add the assets discussed in this phase to your retirement account to deepen and broaden your exposure. In addition, most families will be building equity in their homes as this same time.