Don’t put all your
eggs in one basket.
Nowhere is that old adage more true than in investing.
Because different areas of the market rise and fall at different times,
it's important to make sure that your portfolio is always diversified
across a variety of mutual funds and kinds of securities. If one sector
or security is underperforming, strong performance in other sectors
could help make up for it. In other words, if your whole investment
portfolio is in one sector or security, then your whole portfolio
lags when that sector or security lags. By diversifying, you can help
reduce the overall risk of your portfolio.
There are many ways to diversify your investments. Mutual funds
as an investment vehicle offer built-in diversification, because
they invest in dozens of securities.
Many investment professionals recommend diversification across
at least two asset classes. But you can also diversify even within
a given sector. For example, if you’re primarily interested
in stocks, you can invest in a stock mutual fund instead of buying
individual securities. In addition, you might choose to invest in
a more conservative, income-oriented stock fund as well as an aggressive,
growth seeking stock fund.
The Benefits of Diversification*
A diversified portfolio can help reduce exposure to losses while taking
advantage of potential gains.
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