Domain names in health and education have recently seen increasing demand, while some other areas have fallen slightly out of favour. Those who held quality domain names across many sectors were less impacted, both positively and negatively, than those with narrow specialization. This article looks at ways that you could balance, or diversify, your domain portfolio. A well known idea in financial investment is diversification. The impact of financial market volatility can be reduced by carrying a mix of different asset classes. Most investment portfolios include both stocks and bonds, often along with other asset classes such as commodities, real estate, gold, or cryptocurrencies. During the the financial market drop in March 2020, if you held a diversified portfolio of half stocks and half bonds, losses from would be substantially less, compared to the case of a stock-only portfolio. Diversification is partly simply following the saying don’t put all your eggs in one basket, but it is more than that. Traditionally, when stocks go down in value, bonds often go up, so a portfolio that includes both types of assets tends to be more stable. As well as having both stocks and bonds, it is important to diversify within those asset classes. For example, stocks from large and small businesses, from different regions of the world, and in different sectors of the economy. The topic of diversification in domain name portfolios has received less attention than it deserves. This is perhaps because the degree of correlation in different types of domain names is not as well known as for traditional investment types. In this article, I first look at different ways you might diversify a domain name portfolio, and then consider the arguments for and against diversification. Of course the idea of diversification in domain name investing is not new. In this discussion started by Elefekt in 2003, the fourth tip for success in domain investing was “Diversify your portfolio.” 1. Domain Names for Different Sectors The first way to potentially diversify a domain portfolio is to simply hold domain names from a number of different sectors. A portfolio that held eCommerce, technology, travel, health and education names would probably would be doing alright overall lately, since although demand in travel is down, that is made up by increased interest in domain names in health, eCommerce, and remote education. Brandsly commented on the importance of domain portfolio diversification in a recent NamePros discussion. She went on to comment on how the pandemic, at least in the early weeks, was impacting certain types of venture capital backed technology companies. While such changes in demand may not last long, the greatest opportunities, and most steady flow of sales, will be for those holding appropriate diversification. 2. Different End Users The core of most domain portfolios will be domain names for business use, but keep in mind that domain names are used by more than just businesses. Nonprofit organizations as well as foundations buy domain names, as do individuals, clubs, and others. Remember that many things are named, not just businesses. Concerts, movies, musical groups, events, video channels, etc. all have names, and in most cases use one or more domain names. 3. Domains for Different Sized Businesses The highest value domain names are only within the reach of well-established businesses, or exceptionally well-funded startups. Most economic downturns do not impact all types of businesses the same. Many predict that if we have an extended economic downturn, it may soften demand at the high end of the market for a period of time. However, there may well be new opportunities for modestly-priced domain names suitable for people starting tiny home-based businesses. For this reason, a sufficiently large portfolio including domain names with different prices will be more stable long term. Using NameBio data from the past five years, for every one sale at a price of $50,000 or more, there were 20 sales above $5000, and 181 sales above $500. 4. Different Types of Use We often first think of domain names as business brand names. Often the highest value sales are for domain names used in this way. However, businesses and organizations use domain names in many different ways. Some domain names are the names of a product or service and used to drive traffic. Other domains are used for specific marketing campaigns, or a philanthropic arm. 5. Different Extensions For many decades the .com extension has remained the dominant first choice in much of the world. There is no evidence of that changing in the foreseeable future. Nevertheless, the country code extensions remain strong in many regions. If economic uncertainty comes with increased protectionism, it is at least possible that the country codes may further grow in use and popularity. Some general-purpose country codes, and certain new extensions, have found increasing use in niches. For example, .io is popular in the technology area, .app for relevant businesses, and .ai within artificial intelligence startups. Out of interest I wondered how your portfolio would be diversified if done according to domain sales dollar volume from the past five years, using NameBio statistics. A domain portfolio diversified this way would include the following. .com 82.1% .org 2.7% .net 3.0% all new extensions 3.7% all country code extensions 8.2% everything else 0.3% The everything else category includes .info and .biz, as well as the legacy alternative extensions such as .pro, .asia and others. I have not taken out the $30 million voice.com sale that some regard as an outlier. Had I eliminated that one sale, the .com percentage would decrease by about 4.7%. I have not accounted for registry sales in the new extension totals. It is likely that the country code total is under represented, due to the venues where many country code names sell. 6. Different Types of Names Domain names come in many formats. There are of course dictionary words, either in English or another language. But other domain names are made-up words, through creative spellings, contractions of two words, etc. Some domain names are acronyms, and others are made up of two or more words. Some domain names are short phrases. Other names are purely numbers, while alphanumeric combine both numbers and letters. It seems likely that different types of domain names have performed better in different years. The Chinese market, that specializes in certain forms such as numerics, short-lettered and alphanumeric, has gone through several boom and bust cycles, not always correlated with the global domain market in general. Some degree of portfolio diversification may help you even out these fluctuations. Some years ago Andrew Rice published a NamePros Blog article on diversification Would you like some DiP with your CHiPS?, with DiP meaning Diversified Portfolio. The other thing to keep in mind is that branding and marketing styles change over time. It is probably best, if you invest in brandable names, to hold at least some variety in types of names. Browsing the holdings at a brandable marketplace can give you an idea of what is currently popular, as well as options in brandable name types. This NamePros discussion, started back in 2016 by mhdoc, has suggestions for both types and possible niches. Another worthwhile discussion is Should one specialize in a domain investment niche?, started by Kuffy in 2017. 7. Different Degrees of Risk Different domain names carry different risks. For example, a 5N or 3L .com domain name will always be liquid. That does not mean it will not possibly sell for a loss, but the odds of it not selling at all, or for a catastrophic loss, are low compared to some other types of domain names. In financial investing, usually risk and reward are related. Rewards are generally higher with stocks compared to bonds, because the risk is higher. In domain investing, to some degree, the same idea holds. For example certain types of domain names may be much less likely to sell compared to a more liquid name, but the return on investment, if they do sell, may also be higher. With new technologies or trends, one generally needs to acquire domain names before it is clear how the technology is going to turn out. In new extensions the main opportunity period is at the beginning, but that is when the risk of not knowing how the extension will be received is very high. Kate explained the difficulty with trying to pick trends in this 2018 post. A well diversified portfolio should probably carry a mix of low risk and high risk domain names, according to the overall financial situation and strategy. Keep the advice offered several years ago by karmaco in mind. 8. A Mix of Flip and Hold Names Many domain investors acquire domain names a buy-and-hold strategy, while other investors are much more domain flippers, looking to quickly obtain a return on their investment, and then reinvest as they move on to other domain names. Bernard Wright recently made the argument for long-term domain investment. 9. Income Generating Domain Names Another way to diversify your portfolio would be to include a mix of domain names that generate regular income, through parking, monetized redirection, affiliate development, etc. This does not suit all types of domain names, but has similar benefits to holding dividend-paying stocks or other income financial products. It makes particular sense for those who require a steady income stream from their domain investments. 10. Domain Names for Development While requiring more time, fully developing a few of your domain names is a way to generate income, as well as potentially increasing the future worth of the domain name. Some find it helpful to ask yourself at time of acquisition the following question: Would I develop this name myself. if I had sufficient resources? That question can help guide you toward quality domain names in an area that you really understand. The bonus is the possibility of later development. 11. Diversify Where You Sell While most domain investors already sell across different marketplaces, if you mainly use only a single marketplace, you might benefit from diversifying your listings across more marketplaces. There are probably regional and application differences, in where, and how, end users search for domain names. Also, the fraction of sales happening at different marketplaces almost certainly changes over the years. Consider whether specialized sites, such as the brandable marketplaces, fit your domaining strategy. You can of course diversify into other types of social media or online promotion of your domain names. 12. Retail and Wholesale Sales Some domain investors never sell at wholesale prices to other domainers, while others make that a regular part of their operation. A balance of wholesale and retail sales is one form of diversification that works for some. Keep in mind that NamePros is a great place to make those wholesale transactions. 13. Diversify Pricing and Payment Options The debate over buy-it-now or make offer pricing, or other options such as price upon request, will probably always be with us. In the interest of diversification, it might be wise to have a mix of make offer and buy-it-now across your portfolio. Some potential buyers are more likely to purchase under buy-it-now scenarios, while some may be more apt to start a negotiation process. Payment plans are becoming more popular, and are now easy to implement. You may broaden the pool of possible buyers by offering some domain names, at least, with an optional monthly payment plan. 14. Diversify Your Domain Related Income Sources While domaining is primarily earning money from domain name sales, one way to diversify is to include other streams of domain-related income. Those could include domain brokering, consultancy, writing, analytical work, teaching, guest speaking, website development, icon or graphics creation, leading workshops, or various affiliate opportunities. Regular income from monthly payments on past sales made on payment plans, or rental of domain names, is another way develop monthly income from domain names. While this is not precisely diversifying your portfolio, it is definitely a way to providing more diversified domain-related income. Earlier this year Arpit131 started a discussion entitled What is your backup plan? It includes good ideas for alternative sources of income. The Arguments For Diversification Here are some reasons in favour of domain name diversification, as I see it. Even though it will not completely protect you from market fluctuations, odds are you will be less impacted. Holding a variety of types of domain assets may lead to more sales opportunities. It is difficult to predict future trends with confidence, so it makes sense to spread your domain investments over a number of niches. It may simply be more interesting and personally rewarding when you hold a variety of types of domain assets. You may like the challenge of needing to learn new things in order to master domain names of different niches, types or extensions. If you carry domains in different sectors and extensions, you can make use of all of the competitive advantages you have. For example, investing in your own country code may make sense because you know the market or have local connections. With a more diversified outlook, it is more likely that you will spot new domain name opportunities. The Arguments Against Diversification But there are also strong arguments against domain name portfolio diversification, including the following. It is better to decide what type of domain asset has the best chance of selling for a good return on investment, and hold only those. Why combine types of domain names that have poorer selling probabilities? If your domain names are all very similar, you will become expert in properly pricing the assets, both for acquisition and in sales negotiations. You will develop connections in your specialization, and that will help you in making first contacts. Your portfolio site, if you maintain one, will look more unified and professional, if you hold only domains from a few related sectors. If just starting out, there is a less steep learning curve. For example, investing in new extensions is different from legacy, with different skills to be mastered. If you are in domain investing primarily as a hobby, without the need for quick sales, it makes sense to concentrate only on what interests you. It is after all a hobby. It is easier to become known, to other domain investors and to end users, if you have a narrow focus. Some extensions and types of domain names may carry greater risks, either because a technology does not work out, or because a registry runs into difficulties or is poorly managed. In this way, diversification does not necessarily lead to less risk. While almost all types of names sell in .com, in most other extensions that will not be the case. For example, the types of names that sell in .cc, .io and even .co are considerably narrower. Most new extension sales have been in a single word before the dot. Make sure you have done your research before starting to diversify into a new area. If you advertise, or do other types of promotion, it is easier to target when you hold only a few types of domain names. Rebalancing Your Portfolio Most financial investment advisors recommend that you periodically rebalance your portfolio. A similar case can be made for domain investment, as Page Howe suggested in this article. Only You Can Decide Of course only you can decide what is the right course of action for you. It may depend on factors such as your financial situation, interests and experience, the amount of time you have, and your tolerance for risk. Perhaps the most important question to ask is whether you depend on your domain activities for a regular income stream. Just as those drawing regular income from financial investments benefit from a greater degree of diversification, and a more conservative approach, the same would hold for those needing regular domain name income. Probably no one should seriously consider all of the types of diversification listed in this post. The optimum degree, and type, of diversification, may change with time and experience. I close with this insight from Brandsly. Share Your Opinions I am sure that there are diverse opinions on the topic of diversification, and hope you will share them in the comments with other NamePros members. Do you deliberately diversify your portfolio? Of the ways to diversify mentioned, which do you think are most important? Feel free to share in a general way how you have diversified your own portfolio, or plan to in the future. What types of domain portfolio diversification have I overlooked? Are you considering more diversification going forward?