How a Diversified Portfolio Can Work for You

You may often hear: An investment portfolio should be diversified.¹ This is especially true for guarding against volatile markets like we've seen recently in response to Russia's invasion of Ukraine.

Control Your Emotions

Controlling your emotions is key. One strategy that can help is diversification. No one can accurately predict, year after year, which investments will be winners or losers. But you may be able to reduce poor performance by owning a variety of stocks, bonds, and other asset classes such as cash equivalents. That way, even if some investments falter, others may perform well enough to offset losses.

There's a balance. The quest for diversification can lead you to think the more funds you own, the better. You can have dozens of funds and still not be adequately diversified. How so? It's possible the funds may own similar securities or have similar strategies, so you're not getting much variance.

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Ways to Diversify

You can diversify your portfolio by owning funds across different asset classes that include stocks, bonds, real estate, commodities, and cash. Then diversify within those asset classes.

With stocks, for instance, investors could own funds investing in small-, medium-, and large-sized U.S. and foreign companies. The stocks can be a mix of "growth" (companies whose earnings are expected to continue growing faster than the overall market) and "value" (companies whose shares are selling for less than they're worth). The stocks can also be from different sectors, such as technology, health care, and energy.

Similarly, a diversified portfolio of bond funds would contain different types, such as corporate, municipal, Treasury, and high yield, with various maturities. You can own bond funds investing in companies from different sectors and from U.S. or foreign companies.

Diversification Within One Fund

You can also achieve diversification with just one fund. If you invest in a single target-date fund,² for instance, a professional manager makes sure the portfolio is diversified and has the appropriate amount of investment risk, based on your anticipated withdrawal date.

MissionSquare Retirement, for example, makes available target-date funds for those in, near, or even decades away from retirement. Each fund invests in multiple funds to give investors exposure to a wide range of asset classes, investing styles, sectors, and geographic areas. The fund manager regularly reviews and rebalances the mix of investments, making sure the fund gradually becomes more conservative as you approach the withdrawal date in the fund name.

Learn more about diversification and other key investment strategies by logging into your account and accessing the Financial Wellness Center.

¹ Diversification does not protect an investor from market risks and does not assure a profit. An investor must consider the risk associated with all mutual funds used to diversify assets.

² The target-date funds are not a complete solution for all your retirement savings needs. An investment in a target-date fund includes the risk of loss, including near, at, or after the target date of the applicable target-date fund. There also is no guarantee that a target-date fund will provide adequate income at and through an investor's retirement. Selecting a target-date fund does not guarantee that you will have adequate savings for retirement.