Why Is Diversifying My Investment Portfolio So Important?

Virtually any investment has some risk associated with it. The stock market rises and falls. An increase in interest rates can cause a decline in the bond market.

The key to successful investing is to seek to minimize that risk while maintaining an attractive return on your investments. Historically, one of the most effective ways to minimize your risk is to diversify.

The main philosophy behind diversification is really quite simple: "Don’t put all your eggs in one basket." Spreading the risk among a number of different investment categories — stocks, bonds, money market instruments, for example, or over several different industries, or a mutual fund with its own broad range of securities in one portfolio can help offset the loss in any one investment.

Likewise, the power of diversification may smooth your returns over time. As one investment increases, it may offset the decreases in the other, and vice versa. By reducing the impact of market ups and downs, diversification can go far in enhancing your investing comfort level.

Diversification is one of the main reasons why mutual funds are attractive for both experienced and novice investors.

For a modest initial investment —  often as little as $250 —  you are purchasing shares in a diversified portfolio of securities. You have "built-in" diversification. Depending on the objectives of the fund, it may contain a variety of stocks and bonds, or a combination of the two.

Mutual funds can be an easy and effective way to build a portfolio. They can help you save and invest for long-term growth or current income.

Diversification does not guarantee against loss; it is a method used to help reduce risk.

Mutual funds are sold by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before purchasing a mutual fund. For a prospectus about a fund that interests you, containing this and other information, please contact a financial professional. Read it carefully before you invest or send money.

An investment in a money market porfolio is neither guaranteed nor insured by the Federal Deposit Insurance Corporation or any other government agency. Although a money market fund attempts to maintain a stable $1 share price, you can lose money by investing in a fund.

GE 47224 (12/08)

This material was written and prepared by Emerald Publications.
© 2008 Emerald Publications