The Importance of Diversification

KALAMAZOO, Mich. - March 18, 2015 - PRLog -- No single investment performs well under all conditions. If a large portion of your portfolio is concentrated in one type of investment and bad news causes its value to drop unexpectedly, your long-term financial security may be in jeopardy.

The Ups And Downs
Although you can’t control the factors that cause investment prices to fluctuate, you can diversify your portfolio to help smooth out the ups and downs. Diversification spreads your assets among a variety of quality securities, so success isn’t tied to one company or one type of investment. Bad news for stockholders is generally good news for bondholders, and vice versa.

A well-diversified portfolio includes:

 •Cash and cash equivalents, such as money market funds

 •Fixed-income investments, such as CDs and bonds

 •Growth-and-income investments, such as mutual funds and stocks that have historically paid dividends and the mutual funds that own them

 •Growth investments, including stocks and mutual funds, that offer the potential for greater capital appreciation

Weight Watching
You also need to diversify the investments within each broad category. In the category of fixed income, for example, your money should be spread among different types of bonds and among securities with short-, intermediate- and long-term maturities to help preserve your income when interest rates fluctuate.

If you own individual stocks, pay attention to the percentage of each one in your equity portfolio, as we recommend no more than 5% be in any one company stock. If one or two have appreciated a great deal in price, they may represent too large a portion of your stock holdings. It’s not always easy to sell an investment that has performed well, but it’s risky to become too closely tied to the fortunes of just one or two companies. Remember what they say about too much of a good thing.

How do you make sure your portfolio is adequately diversified? We recommend an annual checkup. If it has been more than 12 months since you last met with your financial advisor to review your portfolio, do yourself a favor and schedule a review today.

Diversification does not guarantee a profit or protect against loss.

Dividends can be increased, decreased or totally eliminated at any time

Mutual fund prospectuses containing more complete information, including the fund’s investment objectives, risks, charges and expenses, as well as other important information that should be carefully considered, are available from your financial advisor. Please read the prospectus carefully before investing or sending money.