Understand the principles behind portfolio diversification and risk management

Economist Harry Markowitz is well-known for his work on the modern portfolio theory and the "efficient frontier." Most modern-day asset allocation and portfolio risk management calculators are based on this theory.

I recommend: Moneychimp puts the portfolio diversification theory into plain English with simple graphs. The Social Security Administration describes the modern portfolio theory and discusses life-cycle funds to create optimal portfolios. The Securities and Exchange Commission has a great beginners’ guide.

Choose your means to get to portfolio diversification

Do you need help with portfolio risk diversification, are you interested in learning, and how much are you willing to pay to get help? Answering these questions will determine the type of account you should have.

I recommend: Kiplinger does a good job of describing the advantages of using a discount broker, an online broker or a full-service broker. If you decide you need the help of a professional for portfolio optimization, CNN Money and the Financial Planning Association have articles discussing merits of portfolio manager professionals.

Select investments for optimal portfolio diversification

If you have decided to choose your own investments, there are many resources available to you.

I recommend: If you are new to investing or have a limited dollar amount to invest, Fidelity’s Asset Manager funds, Schwab’s Portfolio funds or American Century's Asset Allocation funds make it easy to get portfolio diversification. If you want to choose your own mutual funds versus having one fund choose your diversification, CNN Money’s asset allocation calculator will ask you some questions to give you a target asset mix then you can view their best mutual funds to buy in those areas. Vanguard will walk you through a questionnaire and provide you with optimal portfolios (including a suggested one based on your answers as well as other allocation mixes) of mutual funds. For free assistance with your current investments, Fidelity has an online program that will analyze your current portfolio and make recommendations to move you toward optimal portfolio diversification. Although you must sign up as a member, you do not have to be a current client. Schwab has a similar portfolio analysis, but you must be a current client to use it.